Compass Point lowered its price target for Coinbase to $230 from $266 while maintaining a "Sell" rating.
The move came ahead of the crypto exchange's product event scheduled for Wednesday.
Analysts highlighted tokenized stocks and prediction markets as two areas that could help Coinbase diversify revenue.
However, they expressed skepticism about the new verticals offsetting earnings sensitivity to volatile cryptocurrency prices.
Coinbase shares fell more than 5% to $252 on Monday.
What Happened
Compass Point estimates Coinbase could generate $230 million from tokenized stocks and $210 million from prediction markets.
The revenue could take years to materialize, analysts wrote in a Monday report.
"We don't believe new verticals can offset COIN's earnings sensitive to volatile crypto prices," the analysts stated.
"We believe investors are already paying a premium valuation for new features that may not provide meaningful earnings anytime soon."
The investment bank expects Coinbase to unveil several products at Wednesday's event.
Analysts project the exchange will offer tokenized equities to U.S. customers from the start.
Robinhood's stock tokens were rolled out to European users first.
Coinbase's stock offering will likely have similar economics as payment-for-order-flow, analysts wrote.
This means the exchange wouldn't charge commissions but would earn rebates from market makers.
Coinbase shares have [climbed] just 1.7% year-to-date.
That performance significantly lags Robinhood's 215% surge to $118 over the same period.
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Why It Matters
The analyst report comes as Coinbase attempts to reduce dependence on cryptocurrency trading fees.
Screenshots shared on X suggest Coinbase's prediction markets product may be powered by Kalshi.
Last month, Kalshi tapped Coinbase Custody for safeguarding users' USDC.
Coinbase would derive a majority of prediction market revenue by charging 1 cent per contract traded, analysts estimate.
This assumes adoption of a similar strategy to Robinhood and WeBull.
The move could also generate $10 million in stablecoin revenue by boosting on-platform USDC balances.
Coinbase earns 99% of revenue from assets backing Circle's $78 billion USDC product when held on its platform.
Last week, Coinbase, Robinhood, and Kalshi formed the Coalition for Prediction Markets.
The organization aims to establish clear regulatory rules for the sector.
"Unless COIN's stock trading offers similar benefits as traditional eBrokers, we have a hard time seeing users shift their trading from existing platforms," analysts added.
They noted their revenue estimates are based on "fairly optimistic penetration rates."
The December 17 event, called "Coinbase System Update 2025," begins at 2:00 p.m. PT.
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