While cryptocurrency enthusiasts who own stakes on Ethereum are eagerly awaiting the next network update, cryptocurrency exchange Coinbase may also have a lot to look forward to, according to analysts at JP Morgan.
The next upgrade of the Ethereum network, called Shanghai Fork, is scheduled for March and will give people access to funds previously allocated to the Ethereum beacon chain, allowing depositors to participate in the verification of transactions and earn rewards in the form of newly created Ethereum.
Staking Ethereum could be a significant gain for Coinbase if its users are automatically enrolled as is the case with tokens like Cardano and Solana, JP Morgan analysts wrote in a recent research report.
“A buildup in Ethereum has forced holders to lock in Ether indefinitely, which we have seen as a major barrier to ETH accumulation historically,” she said. “We believe Shanghai Fork can usher in a new era of adventure for Coinbase.”
The investment bank estimates that 95% of Coinbase’s retail investors could participate in staking Ethereum after the Shanghai Fork, which could generate between $225 million and $545 million in revenue annually for the exchange.
Currently, Coinbase users must choose to stake their own Ethereum as there is no way for them to access deposits or the ETH they were rewarded with – something the Shanghai Fork will address. JP Morgan estimates that the exchange is already earning about $50 million a year through its Ethereum stakes.
The additional revenue could give Coinbase some warmth amid the current crypto winter. exchange more dangerous Its operations in Japan were due to end soon last Wednesday. The stock exchange has also reduced its workforce twice in the past year, shedding about 1,100 workers last June and Lay offabout 950 employees earlier this month.
Coinbase’s stock price plummeted along with a sharp drop in digital asset prices, dropping more than 70% to $55.16 per share from $191.48 a year ago. However, the recent surge in cryptocurrency prices has sent Coinbase shares up 64% since the beginning of January.
Staking has become a growth area for Coinbase. About 11% of the stock exchange’s revenues in the third fiscal quarter of last year came from shares, compared to 6.2% in the same period of the previous year. In addition to Ethereum, Coinbase offers stakes for Cardano, Solana, Cosmos, Algorand, and Tezos.
JP Morgan analysts noted that the potential upside of the Shanghai Fork for Coinbase depends in part on the exchange’s “extraordinarily large” exposure to Ethereum, which makes up about 25% of the assets on the exchange’s platform.
The investment bank warned that its thesis that Coinbase Ethereum holders are automatically enrolled in the staking Coin program has not yet been verified by Coinbase management but its assessment is based on previous moves by the company. Coinbase did not immediately respond to requests for comment.
And while users of the exchange can disable their Ethereum from staking if the feature is introduced, JP Morgan analysts said this would be an unlikely decision among investors. “Although investors can opt out of the program, we see very few of them wanting to give up the potential investment income generated by betting,” she said.
At the time of this writing, $26 billion The value of ETH has been pledged to the network via staking since the launch of the Beacon Chain in December 2020.
Ethereum’s Shanghai upgrade follows the network’s successful transition to a proof-of-stake system last September. A report by the Crypto Carbon Ratings Institute found that the network’s energy use and carbon footprint decreased by over 99.99%.
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