Coinbase and Robinhood Pin Hopes on Prediction Markets for Future Growth

The growth prospects of Coinbase and Robinhood are increasingly tied to the potential of prediction markets, as investors look past a lackluster first quarter for crypto trading, Cantor Fitzgerald analyst Ramsey El-Assal notes. El-Assal observes that investors are now focusing on forward-looking demand trends and the product roadmap, which includes newer offerings like prediction markets. Despite expectations of softer first-quarter results due to a decline in crypto prices and trading activity, both companies are seen as having long-term growth drivers. Bitcoin and ether prices fell approximately 23% and 29% in the first quarter, impacting trading volumes across exchanges. Trading activity slowed down over the quarter, with Coinbase's volumes decreasing from $66 billion in January to $54 billion in March. Cantor estimates that Coinbase's consumer and institutional trading volumes will be $35 billion and $167 billion, respectively, both below Wall Street expectations. The firm also projects exchange revenue to be below consensus. Nonetheless, El-Assal maintains an 'overweight' rating on the stock and raises his price target to $250, citing improving sentiment and longer-term growth drivers. Robinhood faces similar near-term challenges, with the analyst expecting a decline in trading volumes and a hit to net interest revenue from lower rates. However, the company's business model provides some cushion, as higher volatility can boost trading margins. Cantor expects stronger yields in equities and options to partly offset weaker activity. Crypto revenue quality may come under pressure due to the platform's tiered pricing structure, which earns lower yields on large active traders and higher yields on marginal traders. Despite these headwinds, both stocks have rallied in recent weeks, with Coinbase shares up about 18% quarter-to-date and Robinhood climbing roughly 40% in April. The focus now is on future developments, including regulatory changes and new business lines. Coinbase's prediction markets offering, launched this year, has attracted significant interest, according to El-Assal. Robinhood is also expanding into prediction markets, alongside other initiatives such as tokenization and private market access. These efforts, along with regulatory changes, could drive future growth. Cantor maintains an 'overweight' rating on Robinhood and raises its price target to $110. The broader view is that while current trading trends remain tied to crypto price cycles, the next phase of growth will depend more on product expansion and new use cases. However, the regulatory environment for prediction markets remains uncertain, with the New York Attorney General's office filing a lawsuit against Coinbase and Gemini over their prediction market offerings, alleging that these products are actually gambling products and therefore in violation of state regulations.