The exchange’s revenue share from interest income from USDC reserves would be the main source of additional revenues.
JPMorgan analyst Kenneth Worthington stated that Coinbase Global (COIN), may be able generate $1.2 billion more interest income-driven revenue in 2023 due to increases in short-term rates.
JPMorgan estimates that Coinbase’s joint venture alone with USDC issuer Circle could generate \$700 million in incremental revenue. In 2018, the CENTRE Consortium was formed by both firms. It included a revenue share from interest income from USDC reserves.
Coinbase could earn interest from customers deposits
JPMorgan pointed out that Coinbase also has the potential to earn interest income from customer fiat or its corporate cash balance. This could add up to $1.2 billion in additional revenue next year.
According to the bank, Coinbase’s interest income can be affected by the possibility of Coinbase losing USDC and fiat currencies. We see the potential for institutional investors holding less USDC due to the possibility cost of holding quasi cash that doesn’t yield a yield.
We see less retail holding its fiat at Coinbase, since it doesn’t earn a yield. JPMorgan stated that they see the potential for USDC and fiat balances declining for Coinbase.
JPMorgan maintained its neutral stock rating for Coinbase. However, it increased its price target from $64 to $78. Coinbase traded at \$76 per share on Friday morning, and has fallen 70% over the past year.
