FTX’s Failure Rocks the Cryptocurrency World and Coinbase

Coinbase Stock at a Glance

• Current Morningstar Fair Value Estimate: $90
• Coinbase Stock Star Rating: 4 Stars
• Economic Moat Rating: None
• Moat Trend Rating: Stable

No-moat-rated Coinbase’s (COIN) shares have experienced a spike in volatility in recent days as rival exchange FTX’s woes tore through the broader cryptocurrency ecosystem and sent cryptocurrency prices tumbling. Self-dealing between FTX and its associated firm, Almada Research, has left the exchange unable to honor client withdrawal requests, leaving customer funds trapped at the exchange. While Binance, the largest cryptocurrency exchange in the world, had looked like a potential savior for the firm, the company pulled out of a potential deal after a short due diligence process. This leaves FTX’s eventual failure highly likely, though the firm continues to look for funding options.

In the near term this is clearly a negative event for Coinbase, as trust in cryptocurrency, already in short supply, is eroded even further. Unlike earlier failures in 2022, retail awareness and trust in FTX was significant and the company was a major advertiser in the United States, going so far as to purchase stadium naming rights in Miami. Moreover, founder Sam Bankman-Fried has spoken regularly with regulators and industry leaders, while Sequoia Capital and Softbank were investors in FTX. A failure of this scale will likely have a chilling effect on investor interest in cryptocurrency.

That said, FTX was one of Coinbase’s largest competitors, and its collapse places Coinbase as comfortably the second-largest exchange in the world. Additionally, Coinbase’s long-time pitch has been that it is the safe and well-regulated place to purchase cryptocurrency and interact with web 3.0. These events have once again reinforced the importance and value of being a regulated and publicly traded institution, likely benefiting Coinbase’s competitive position. While there is short-term pain from lower cryptocurrency prices, which remain well below where they were a week ago, we do not see Coinbase as being materially exposed to recent events, and we are maintaining our $90 fair value estimate.