Kenneth Worthington, a JPMorgan analyst, believes that digital currency exchanges such as Coinbase will be a significant “beneficiary” of Ethereum’s long-awaited transition to proof-ofwork (PoW), rather than proof-ofstake (PoW). Worthington explained that The Merge could increase Coinbase’s annual income of $80 to $100 millions based on $2K ethereum price and a 5% yield.
The Ethereum network will implement the Merge in 29 days. This is expected to take place on or about September 15, 2022. This will be a major milestone for the network that has been operating as a PoW-based blockchain for seven years. The network will be fully transformed into a PoS distributed blockchain system. Bitcoin.com News reported on JPMorgan (NYSE JPM). However, strategists claimed Ethereum Classic could reap the benefits of The Merge. This is because ether miners will have to mine another Ethash-based cryptocurrency.
JPMorgan analyst Kenneth Worthington explained this week in a note for investors that the cryptocurrency exchange Coinbase Global(Nasdaq : COIN] could be a “meaningful recipient” of The Merge. Analyst at JPMorgan also pointed out that staking revenue could help boost exchanges such as FTX, Binance and Gemini.
Worthington stated that he believes the staking income opportunity is greater (proportionally). Given that we expect institutional clients to contribute meaningfully [ether] staking revenues, but less for institutional customers, Worthington stated. The JPMorgan analyst said that the vast majority of economics still lies with retail. To become a validator, 32 ether must be staked on your own. However, many exchanges offer ethereum-staking services that have negligible threshold requirements for earning from staked assets.
JPMorgan’s Worthington foresees the Merge Boosting Coinbase Sales up to $100 million
According to Dune Analytics’ Ethereum Staking dashboard, Coinbase is the largest ETH holder in terms of validators at the time of writing. Coinbase controls 14.7% of the 13,326,533 Ethereum deposited into Ethereum 2.0 contract. This is 1,966,080 . While Bitstamp, Binance and Kraken all have large staking positions in crypto firms, Coinbase and the liquid stake service Lido hold the largest. JPMorgan’s Worthington believes Coinbase will benefit greatly from the staking reward.
Based on $2,000 [ether] yield and 5% [ethereum] return, we estimate Coinbase’s incremental annual staking revenue of $650m from the Ethereum Merge. Worthington explained that they see an incremental annual income of $80-$100 millions in staking income.
The COIN share price is currently $85.44 compared to the $47 share prices on June 30, which is 65.04% lower. In a blog article, Coinbase provided a summary of what customers need to know about the PoW to PoS transition on August 16. Coinbase will temporarily suspend ethereum transactions during The Merge. It will also not process withdrawals or deposits during this period. ERC20-based tokens that are built on top Ethereum network infrastructure also fall under the Coinbase pause rules.
On August 14, Coinbase was asked by a variety of exchanges: “If regulators ask to censor at ethereum protocol levels with your validators, will you: (A. Comply and censor [the] protocol Level (B. Shut down staking service to preserve network integrity and prevent it from being disrupted”)” Brian Armstrong , Coinbase cofounder and CEO replied to the question via Twitter three days later on August 17.
Armstrong wrote Thursday, “It’s an imaginary we hopefully won’t actually have to face.” “But we would choose (B) if we had to, I believe. We need to see the larger picture. You may have a better solution (C) or a legal challenge that could lead to a better outcome.