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Ethereum merger will be good for Coinbase, says JPMorgan

Cryptocurrency exchange Coinbase could benefit from the long-awaited Ethereum merger, according to investment bank JPMorgan.

In a Wednesday note to investors, analyst Kenneth Worthington said the San Francisco-based exchange’s Ethereum holdings and its staking service for institutions would help it financially.

Coinbase’s numbers haven’t been great during the bear market: Earlier this month, it job $1.1 billion in net losses in the last financial quarter as trading volume on the stock exchange fell 29%.

But Ethereum’s decision to ETH 2.0 could help the company, the New York-based investment bank said. “We view Coinbase as a significant beneficiary of the Ethereum merger,” the JPMorgan memo reads. “Coinbase is bigger in Ethereum than we thought intuitively, which leads directly to a bigger revenue opportunity.”

He added, “We believe Coinbase has taken a series of steps to maximize Ethereum’s staking revenue opportunity.”

Ethereum, the second-largest cryptocurrency by market cap, is changing the way it does things next month in an update called “fusion”. This will move the blockchain to a proof-of-stake consensus mechanism.

Currently, Ethereum uses a proof of work consensus mechanism, the same as Bitcoin. With this system, miners try to solve complex mathematical equations with an energy-intensive process, all to generate new blocks and earn cryptocurrency rewards.

But Ethereum’s move to proof-of-stake will eliminate the need for miners. Instead, validators will step in and provide network security by locking down the network’s native cryptography, which can be done on exchanges like Coinbase.

Coinbase owns a lot of Ethereum — a 15% share of assets, JPMorgan said — and that will help give it a competitive edge in this space. Coinbase has also started staking offer for institutional clients this month, and its CEO, Brian Armstrong, said he expects this to benefit his business model.

JPMorgan estimated in its note that Coinbase can generate an additional $650 million in annual staking revenue from the Ethereum “merger,” with Ethereum trading at $2,000 and yielding 5%.

Ethereum is currently trading at $1,838.56, down 2.26% in the last 24 hours.

The switch from Ethereum to ETH 2.0 is expected to be completed by September 15 or 16. It is hoped that this will make the network faster, more scalable and more energy efficient (unlike Bitcoin, which is critical not to be green.)

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