Coinbase and Robinhood's Growth Prospects Lie in Prediction Markets

The growth prospects of Coinbase and Robinhood are shifting towards prediction markets, according to Cantor Fitzgerald analyst Ramsey El-Assal, as investors look beyond a disappointing first quarter for cryptocurrency trading. El-Assal noted that investors are no longer focused on quarterly results, instead shifting their attention to future demand trends and product roadmaps, including emerging offerings like prediction markets. Despite expectations of softer first-quarter results due to a decline in cryptocurrency prices and trading activity, both companies are expected to drive growth through new products. Bitcoin and ether prices fell by approximately 23% and 29% in the first quarter, resulting in decreased trading volumes across exchanges. Cantor Fitzgerald estimates that Coinbase's consumer and institutional trading volumes will be $35 billion and $167 billion, respectively, both below Wall Street expectations. However, El-Assal maintained an 'overweight' rating on the stock and increased the price target to $250, citing improving sentiment and long-term growth drivers. Robinhood is also facing near-term pressure, with the analyst expecting a decline in trading volumes and a decrease in net interest revenue due to lower rates. Nevertheless, the company's business model provides some protection, as higher volatility can boost trading margins, and Cantor expects stronger yields in equities and options to partially offset weaker activity. Despite these challenges, both stocks have rallied in recent weeks, with Coinbase shares rising about 18% quarter-to-date and Robinhood climbing roughly 40% in April from late-March lows. The focus is now 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 investing in prediction markets, along with other initiatives such as tokenization and private market access. Cantor maintained an 'overweight' rating on Robinhood and raised its price target to $110. The broader view is that while current trading trends remain tied to cryptocurrency price cycles, the next phase of growth will depend more on product expansion and new use cases. However, the legality of prediction markets is currently being debated in state and federal courts, with the Commodity Futures Trading Commission arguing that they are swaps and should be regulated at the federal level, while states argue that they should be licensed and overseen by state regulators.