Cryptocurrency exchange Coinbase has recovered slightly on the stock market after a JP Morgan analyst encouraged investors to buy shares in the business.

Coinbase’s stock has slumped by 41.2% to $224 since its public debut in April. On the day of its initial public offering, the company traded at $381. Coinbase’s and other cryptocurrency exchanges losing market shares have coincided with cryptocurrencies like bitcoin and etherum falling in value.

“Coinbase and Binance and Kraken, etcetera, all of the main exchanges, their performance is highly linked to the performance of cryptocurrencies,” Nicklas Nilsson, senior analyst at GlobalData and the author of a new thematic research report about blockchain, tells Verdict. “So if less people are buying crypto, they will have less activity as well.”

However, Coinbase rallied slightly after JP Morgan analyst Kenneth Worthington recommended investors to buy shares. He said the cryptocoin exchange occupied a “key position” in the US market for cryptocurrency transactions.

Coinbase shares consequently jumped by 7% and is now trading at $240.

“We see the cryptomarkets as durable and growing, and expect Coinbase has the opportunity to influence and benefit from this market growth as it innovates,” Worthington wrote in a note to clients, according to MarketWatch.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData

Worthington argued that, despite Coinbase having lost some ground over the last month, the exchange still has a lot of potential.

The analyst said that if it can leverage its 56 million verified users and convert them into funded accounts, then Coinbase is set to become a key player as more businesses accept cryptocurrencies.

“Cryptocurrencies are gaining interest of investors, building trust as demonstrated by the growing numbers of retail/institutions invested, and supplementing existing ownership of gold and fiat currencies,” Worthington wrote.

“While cryptocurrencies lack the history of other stores, they improve on certain flaws/risks inherent in other traditional stores of value.”

Coinbase became one of JP Morgan’s first crypto exchange clients in May 2020, after CEO Jamie Dimon famously said “bitcoin is a fraud” in 2017. He has since backpedalled on his remarks, saying he regretted them.

“I’m not a bitcoin supporter,” Dimon said earlier in May. “I don’t care about bitcoin. I have no interest in it.”

He added: “On the other hand, clients are interested, and I don’t tell clients what to do.”

Nilsson is not surprised that JP Morgan has embraced Coinbase and crypto exchanges.

“They have a lot of clients now who wants to get into the space,” Nilsson says. “And there’s a lot of companies paying their employees in digital currencies or digital assets.”

Indeed, companies such as PayPal, Mastercard and UK challenger bank Revolut have introduced cryptotrading and payments features in recent months.

The news about Coinbase’s slight recovery comes as several regulators and lawmakers around the world have proposed or argued for stricter cryptocurrency regulations, for example the US, Hong Kong, Turkey and the UK.

The Hong Kong Bitcoin Association tweeted in response to the news that China planned to ban bitcoin by tweeting: “For those new to bitcoin, it is customary for the People’s Bank of China to ban bitcoin at least once in a bull cycle.”

Nilsson agrees with that statement, having invested in both bitcoin and etherum in recent years.

“I have invested in crypto since 2016. and I think it’s the third time I’ve heard exactly the same kind of statement,” he says. “I think a lot of people who invested in crypto are not surprised about the new focus on regulations, but at the same time, I think regulation is needed for the long-term success of cryptocurrencies. At the same time, in the short term, it will have a negative impact on prices.”

In other recent bad news for cryptocoin, Tesla has stopped people from buying cars with crypto – if they ever did – and graphical computing giant Nvidia announced that it will further reduce the hash rate in its new line of graphics cards, meaning it’s going to get even harder for bitcoin miners to use them.

The fear of stricter cryptocurrency regulations is widely thought to be one of the factors which are causing bitcoin to fall 44.5% from its all-time high in April to $35,319 earlier this week. It is currently trading at $39,148.