Coinbase Risks Crypto ‘Cannibalization’ With Prediction Market Push: Mizuho

The money has to come from somewhere.

And when it comes to prediction markets, that could be a problem for Coinbase compared to competitors, according to a study detailed in a note from Mizuho Securities on Tuesday.

After collecting responses from more than 230 Coinbase and Robinhood users, analysts at the investment banking firm found that 50% of the retail brokerage’s clients plan to fund prediction market bets with fresh money, compared to 37% at the crypto exchange.

While 37% of users surveyed said they are just as likely to fund bets at Coinbase with new deposits, the analysts highlighted “cannibalization issues” that could blunt the San Francisco-based exchange’s expected push into the space.

“We remain cautious about the medium-term upward trend in prediction market revenue given the potential cannibalization from crypto sales,” they wrote, lowering their price target for Coinbase shares from $320 to $280 and reiterating a “neutral” rating.

Coinbase is expected to reveal this on Wednesday various new productswhich could position the exchange as a more direct competitor to Robinhood, which started supporting speculation about sports and politics earlier through Kalshi earlier this year.

Robinhood has that too floundered abroad with tokenization, one of the areas some analysts think Coinbase’s revamp will also focus on. Analysts from investment bank Compass Point said this on Monday provided tokenized equity as a notable opportunity for Coinbase.

Mizuho analysts wrote that their price target adjustment was seen as “softer than initially expected” in recent months, marked by a historic liquidation and Bitcoin’s subsequent decline from an all-time high above $126,000 in October to $87,690 on Tuesday.

Mizuho analysts found that Robinhood and Coinbase users were nine times more likely to engage in prediction markets than someone who didn’t use either app. Given the speculative nature of crypto, Salman Banaei, general counsel at Plume, a real-world asset infrastructure provider, told Declutter that it makes sense.

“The Venn diagram of traders in these two markets overlaps significantly,” he said. “People want big returns, so when crypto is bearish, the prediction markets look pretty good.”

Still, Mizuho’s research suggests that Coinbase users are not being shut out of the prediction markets by the exchange’s current lack of support. Most Robinhood and Coinbase users already use them, in their apps or elsewhere on the internet, the analysts found.

Companies focused on retail may see opportunity in the prediction markets, as well as the parent company of the New York Stock Exchange inked a $2 billion investment in Polymarket this year, expanding the distribution of its data to Wall Street firms.

Last week, Jeffrey Sprecher, CEO of Intercontinental Exchange, said this Bloomberg News that half of the exchange operator’s 10,000 customers are interested in prediction markets.

Coinbase shares rose just over 1% to $253 on Tuesday, according to Yahoo Finance. The company’s share price is down 10% in the past month, but remains slightly higher than last year.