Coinbase Faces Fierce Competition in Derivatives, Analysts Warn

In brief

Compass Point analysts reiterated a bearish $140 price target for Coinbase, warning of fierce competition in the derivatives space.

While Coinbase secured regulatory relief to offer offshore perpetual futures via its Deribit subsidiary, Kalshi and Binance’s potential heightens risks.

Despite pulling in $50 million in first-quarter revenue from perpetual futures, Compass Point flagged signs of cannibalization.

Coinbase faces an uphill battle when it comes to derivatives as customers enjoy a growing number of ways to trade perpetual futures, according to analysts at Compass Point.

Amid depressed market conditions and competitors eyeing increased market share, Coinbase’s efforts to let customers speculate on digital assets using leverage will generate limited revenue growth, the investment bank’s analysts shared in a Monday note.

“Competition and low switching costs limit COIN’s ability to exert pricing power relative to spot trading, particularly among more sophisticated users that are most likely to trade these products,” they added, referring to perpetual futures, or perps.

Shares of the exchange were 2.6% lower at midday, changing hands around $184, according to Yahoo Finance. Compass Point reiterated a “Sell” rating and $140 price target.

On Friday, Coinbase declared that it had gained regulatory relief from the CFTC to give users in the U.S. access to offshore crypto perps through the exchange’s subsidiary, Deribit. Coinbase acquired the venue for $2.9 billion last year, reflecting an aggressive push.

That same day, the regulator flashed a green light for Kalshi to offer perps tied to Bitcoin. The CME subsequently signaled that Bitcoin futures and options trading would happen around the clock through its venue. Unlike traditional futures, perps don’t expire, allowing traders to hold positions indefinitely, anchored to underlying assets through periodic payments.

The analysts noted that Interactive Brokers, one of the world’s largest brokerages, has already integrated the prediction market alongside crypto exchange Bullish. At the same time, Kraken and Robinhood have announced that perps are rolling out soon.

On top of that, the analysts argued that there are signs of cannibalization because Coinbase notched $50 million in first-quarter perps revenue as revenue from retail trading fell to its lowest point since the third quarter of 2024.

As Coinbase faces competition within the U.S., Compass Point described the CFTC’s future approvals as potentially negative. The regulator’s ability to allow Americans to trade on Hyperliquid or offshore venues like Binance is among “growing risks,” the analysts wrote.

“We also expect leverage restrictions to limit U.S. perps trading relative to offshore markets,” Compass Point added. “As such, we view the U.S. regulatory expansion as a negative driver for COIN’s market share and pricing power longer-term.”