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Cryptocurrency exchange Coinbase could benefit from Ethereum’s long-awaited merge, according to investment bank JPMorgan.
In a Wednesday note to investors, analyst Kenneth Worthington said that the San Francisco-based exchange’s Ethereum holdings and its staking service for institutions will help it financially.
Coinbase’s figures haven’t been great during the bear market: earlier this month it posted $1.1 billion in net losses over the past financial quarter as trading volume on the exchange fell by 29%.
But Ethereum’s move to ETH 2.0 could help the company, the New York-based investment bank said. “We see Coinbase as a meaningful beneficiary of the Ethereum Merge,” the JPMorgan note read. “Coinbase is bigger in Ethereum than was intuitive to us, thus leading directly to a bigger revenue opportunity.”
It added: “We believe that Coinbase has taken a series of steps to maximize the Ethereum staking revenue opportunity.”
Ethereum, the second biggest cryptocurrency by market cap, is changing the way it does things next month in an update called “the merge.” This will move the blockchain to a proof-of-stake consensus mechanism.
Right now, Ethereum uses a proof-of-work consensus mechanism, the same one as Bitcoin. With this system, miners attempt to solve complex math equations with an energy-intensive process, all to generate new blocks and earn rewards in cryptocurrency.
But Ethereum’s move to proof of stake will eliminate the need for miners. Instead, validators will take their place and keep the network secure by locking up the network’s native crypto—something which can be done on exchanges like Coinbase.
Coinbase holds a lot of Ethereum—a 15% share in assets, said JPMorgan—and this will help give it a competitive advantage in this space. Coinbase also started offering staking for institutional clients this month, and its CEO, Brian Armstrong, said he expects this will benefit its business model.
JPMorgan estimated in its note that Coinbase can generate an incremental annual staking revenue of $650 million from Ethereum’s “merge,” with Ethereum trading at $2,000 and a 5% yield.
Ethereum right now is trading for $1,838.56, a drop of 2.26% in the past 24 hours.
Ethereum’s move to ETH 2.0 is expected to be completed by September 15 or 16. It is hoped it will make the network faster, more scalable, and more energy efficient (unlike Bitcoin, which is criticized for not being green.)