Coinbase Stock Faces Fresh Risks as ETF Outflows Rise and USDC Weakens

Key Insights

• Coinbase stock dropped to a crucial support level this week.
• USDC market cap has dropped to $73 billion from a record high of $8o billion.
• Coinbase’s business will be impacted by the ongoing ETF outflows.

Coinbase stock fell to the $140 support level this month as the crypto market remained under pressure. The shares have dropped more than 66% from last year’s peak and could face additional downside if Bitcoin and Ethereum ETF outflows continue while USDC circulation contracts.

Coinbase Faces Pressure From Slowing USDC Growth

Coinbase Global has expanded its business substantially in the past few years, a move that has helped it to diversify its revenue sources. In addition to making money handling crypto transactions, it is now making money in various sources. Its 12 products are now making over $100 million in annual revenue.

One of the most successful businesses is its stablecoin business, which it entered in through a partnership with Circle Internet Group. Coinbase acts as a distribution channel for USDC and then keeps all the interest income it makes.

This business is making a significant portion of its revenue. In the first quarter, its stablecoin revenue jumped to over $305 million, with its USDC holdings jumping to $19 billion.

The challenge, however, there are signs that the stablecoin business is not growing as the crypto winter has intensified. Data compiled by CoinMarketCap shows that the amount of USDC in circulation has been in a strong downward trend this month. They now stand at $73.5 billion from nearly $80 billion earlier this month.

The falling USDC in circulation has coincided with the ongoing retreat in bond yields as investors readjust their interest rates forecasts. Data shows that the two-year yield retreated to 4.1% from the year-to-date high of 4.235%. This means that its stablecoin revenue growth will be under pressure in the near term.

Coinbase Crypto Custody Solutions Under Pressure Amid Outflows

In addition to its stablecoin business, Coinbase is coming under pressure from its crypto custody solutions. It makes money by safeguarding Bitcoin and Ethereum for its custodial clients like BlackRock and Grayscale. While the details are not public, the company makes a small fee for all assets it holds, with estimates being between 0.1% and 0.15%.

The challenge, however, is that crypto ETFs are not doing well this year, with the biggest ones experiencing substantial outflows. Bitcoin ETF outflows have soared to $4.3 billion this month, close to double what they lost last month. In total, these funds have had net outflows of over $5.4 billion this year.

Similarly, Ethereum ETFs have lost over $1 billion this year, bringing their net assets to $8.6 billion. Therefore, there is a likelihood that the company will make less money from the custody business this year.

These headwinds are on top of the ongoing crypto winter, which guarantees its transaction volume and revenue will drop this year. Indeed, analysts are predicting that its annual revenue will drop by 14.6% this year, with its newly launched products taking more time to start generating enough revenue.

Coinbase Stock Price Technical Analysis

COIN shares have been in a strong downward trend since this year as the crypto winter has continued. It bottomed at $139, its lowest level in February, where it found substantial support. The stock has remained below all moving averages and formed a triple-top-like pattern.

The stock has also dived below the ultimate support of the Murrey Math Lines tool, confirming the bearish outlook. Therefore, the most likely Coinbase stock forecast is bearish, a move that will be confirmed if it drops below the double-bottom level of $139. A drop below that price will point to more downside, potentially to $100.

The bearish outlook will become invalid if the crypto market rebounds. If this happens, sentiment in the crypto industry will improve, pushing stocks higher.

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