Oppenheimer Executive Director and Senior Analyst Owen Lau to weigh in on Coinbase’s latest round of layoffs and how the company’s cost-cutting moves are helping it stay afloat in the broader crypto space.

Video Transcript

SEANA SMITH: Coinbase shares closing up about 13% today after announcing plans to cut 20% of its staff. Now the stock, though, has been under a tremendous amount of pressure over the last year, off about 80%.

Well, ahead of this announcement today, our next guest warned about the cuts in his latest note that was published yesterday, so we want to bring him in. Owen Lau is Oppenheimer’s executive director. Owen, it’s great to see you here.

You nailed it. You said that we needed to be prepared for Coinbase to cut further and talking about layoffs, talking about what has certainly been a crypto winter, and it has been weighing on the stock. What do you think of the size of the cuts today? Is it enough?

OWEN LAU: So first of all, thank you for having me. So you just got it. We published a note. We said that Coinbase should cut around 20% to 30% of the workforce, and it came in at around 20%. To me, I think it’s enough for now based on current trading environment, but longer term, I wouldn’t be surprised if they do further cut. But based on our math, their number of employees should be about like a little bit over 3,000 after these cuts. So I think for now it should be enough, but we will see longer term and how the trading volume trends.

DAVE BRIGGS: Does this do anything to change your outperform and $72 price target on the stock?

OWEN LAU: It does not because we have expected they are going to do something like that with the sought [AUDIO OUT] cut. And actually longer term– first of all, we recognize the challenging environment in the crypto space, like, you know, crypto winter. I think they say a crisis of confidence going on.

But if you believe in this technology, believe in digital assets and blockchain, there will be some survivors. And based on our math, Coinbase has a pretty strong balance sheet to survive through this period. So longer term, we believe Coinbase can be one of the few survivors. So longer term, we remain positive on the stock.

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SEANA SMITH: So, Owen, speaks to me a little bit more about why you’re bullish specifically on Coinbase. I know you just mentioned the balance sheet, but what else do they have that maybe some of the other exchanges don’t? And when we talk about the potential for other exchanges to fail, when we’re looking out years from now, how many exchanges do you expect to be left when it comes to crypto?

OWEN LAU: So first of all, it makes sense. They could be a strong brand in the United States. That’s point number one. Point number two, in terms of the regulations, they are more regulatory compliant compared to many other platforms. So I felt like under these more increasing regulatory-scrutiny environment, Coinbase should fare better than many other exchanges.

And longer term, our prediction is there will be fewer than five exchanges in the world, and Coinbase could be one of them.

DAVE BRIGGS: Yeah, their CEO, Brian Armstrong, in an interview talked about more shoes to drop in that environment.

Let’s talk about Bitcoin. Largely speaking, very volatile last year and, quite frankly, the last few years. Looks to almost be stabilizing somewhere around that $17,000. We’re seeing at $17,475, up 1 and 1/2 plus percent today. Do you see that stabilizing throughout this year? Is there more volatility to come as we see a few more interest-rate hikes from the Fed?

OWEN LAU: So first of all, it’s hard to predict the direction of Bitcoin. We know it has been volatile, but the volatility lost a little bit over the past few months. But I do believe that Bitcoin and other digital assets are pretty highly correlated with the interest-rate direction. So if the Fed stops raising interest rates or even peak it at the end of this year or next year, that should support Bitcoin price and other digital assets.

And then there are some other fundamental reasons in this space to be optimistic about this industry. So the first one is the Shanghai upgrade in Ethereum. In March 2023, I think the developers said that they would keep going on for this date. And then another key event is the Bitcoin halving in March 2024. So I believe there are fundamental reasons in this space to be optimistic for the rest of this year and also going into 2024.

SEANA SMITH: So, Owen, longer term, you think crypto could be an attractive player, or at least you see some catalysts there on the horizon. I think you would say that, similarly to Coinbase. In the meantime, though, in that short-term duration, what do you expect to see just in terms of that trading action? Is it likely to be very volatile?

OWEN LAU: In terms of trading, I actually don’t expect it’s going to be volatile. I think it will be pretty stable compared to, you know, what we saw in 2021. But one thing I do feel like investors should pay attention to is rising interest rates can actually help Coinbase because they have a revenue-sharing agreement with Circle. So they’re sharing the interest income with a large stablecoin company. So if interest rate continues to go up, Coinbase can benefit from that and offset some of the trading lost. So I do think that would also benefit Coinbase in the near term.

DAVE BRIGGS: All right, Oppenheimer’s Owen Lau. We’ve got to leave it there. Good to have you on, sir. Appreciate that.