Coinbase Could Be a Material ‘Beneficiary’ of Ethereum’s Merger Transition, Says JPMorgan Analyst

Coinbase Could Be a Material ‘Beneficiary’ of Ethereum’s Merger Transition, Says JPMorgan Analyst

JPMorgan analyst Kenneth Worthington says digital currency exchanges like Coinbase will end up being a significant “beneficiary” of Ethereum’s long-awaited transition from proof-of-work (PoW) to proof-of-stake (PoW). Based on $2K ethereum prices and a 5% ethereum yield, Worthington explained that The Merge could increase Coinbase’s annual revenue by between $80 million and $100 million from staking services.

As financial giant’s market strategists focus on merger, JPMorgan analyst says staking revenue could boost Coinbase

In 29 days, the Ethereum network is expected to implement The Merge around September 15, 2022. It will be a big deal for the chain that has operated as a PoW blockchain for seven years. This is because the network will be fully transitioning to a PoS distributed ledger system. Four days ago, News reported on JPMorgan (NYSE: JPM) strategists who said Ethereum Classic (ETC) could benefit from The Merge as ether miners will be forced to mine another Ethash-based cryptocurrency.

This week, JPMorgan analyst Kenneth Worthington explained in a note to investors that cryptocurrency exchange Coinbase Global (Nasdaq: COIN) could be a “significant beneficiary” of The Merge. The investment bank analyst also noted that gambling revenue could also boost exchanges like FTX, Binance and Gemini.

“We see the staking revenue opportunity as (proportionally) larger than the revenue opportunity given that we expect institutional staking customers to contribute significantly to [ether] betting revenue, but much less for institutional customers,” Worthington said. “The vast majority of the economy is still in retail,” added the JPMorgan analyst. To be a validator, 32 ether is required to stake on your account, but several exchanges offer ethereum staking services with negligible threshold requirements to earn on staked assets.

JPMorgan’s Worthington Expects Merger to Boost Coinbase Revenue by Up to $100M

At the time of writing, Coinbase is one of the largest ETH holders in terms of validators, according to the ETH Staking dashboard hosted by Dune Analytics. Of the 13,326,533 ether deposited in the Ethereum 2.0 contract, Coinbase controls 14.7% or 1,966,080 ETH. Crypto firms like Kraken, Binance, Bitcoin Suisse, and Bitstamp also have significant staking positions, but Coinbase and liquid staking service Lido have the largest. JPMorgan’s Worthington expects Coinbase to benefit significantly from staking rewards.

“We estimate Coinbase’s incremental annual staking revenue from the Ethereum merger of $650 million based on $2,000 [ether] and 5% [ethereum] yield. We see [an] incremental annual revenue of $80-$100 million staking revenue,” Worthington’s memo details.

Year to date, COIN is down 65.04% to a high of $357 per share this year, but the current $85.44 is above the June 30 low of $47 per share. Additionally, on August 16, Coinbase outlined in a blog post what customers “need to know” about the upcoming transition from PoW to PoS. During The Merge, Coinbase will “briefly” pause ethereum transactions and will not process withdrawals or deposits during the switch. Coinbase’s pause rule additionally applies to ERC20-based tokens built on top of the Ethereum network.

On August 14, Coinbase and several exchanges were I ask: “MEf regulators ask you to censor in the ethereal protocol level with its validators: (A) Shall comply and censor in [the] protocol level (B) Turn off stakeout service and preserve network integrity.” Co-founder and CEO of Coinbase bryan amstrong responded to the question on Twitter three days later, on August 17.

“It’s a hypothetical situation that hopefully we won’t face,” Armstrong wrote Thursday. “But if we did, we’d go with (B), I think. I have to focus on the big picture. There may be a better option (C) or a legal challenge that could help achieve a better result.”

Tags in this story

32 ETH, Binance, Brian Armstrong, COIN, COIN Stocks, Coinbase, Ethereum, Ethereum Update, ftx, Gemini, jpmorgan, JPMorgan Analyst, JPMorgan Strategists, Kennethworthington, Lido, Merger, PoS, PoW, PoW transition to PoS, Proof of Work, Proof of Stake, punters, staking services, The Merge, Validators

What do you think of JPMorgan analyst Kenneth Worthington’s comment? Let us know what he thinks on this topic in the comments section below.

jamie redman

Jamie Redman is the news lead at News and a fintech journalist based in Florida. Redman has been an active member of the cryptocurrency community since 2011. He is passionate about Bitcoin, open source, and decentralized applications. Since September 2015, Redman has written more than 5,700 articles for News about the disruptive protocols emerging today.

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