Why this Bank of America analyst upgraded Coinbase to buy

BofA upgraded Coinbase to Buy because the stock is down about 40% from last summer's highs while product pipeline and user growth momentum are building. The company acquired Deribit to expand into options, announced plans for stocks, ETFs, equity options, and prediction markets at its December 17 product showcase, and is developing Coinbase Tokenize to let third parties and asset managers tokenize products, which should benefit from real-world asset tokenization. Coinbase is the leading U.S. crypto exchange and can leverage that trusted position to grow Base, potentially launch a Base native token that could raise billions for Coinbase, and capture asset-management tokenization and crypto wealth-management flows. Near term it is highly correlated with Bitcoin, but longer term the thesis is not all about Bitcoin. Short interest is up about 2x year over year, long-only investors have yet to buy, and top holders are Vanguard, iShares, and State Street after S&P 500 inclusion.

Near term, Bitcoin is highly correlated with Coinbase, so a Bitcoin price rise over the next six months would help Coinbase. Bitcoin has fallen sharply from last summer and appears to have bottomed, and the administration is only in its second year with several policies still positive for the crypto market. A potential shift by large wirehouses from near-zero crypto allocations to even a few percentage points could represent about $1 trillion of cryptocurrency buying.