Crypto exchange Coinbase may buy the company that owns the largest cryptocurrency broker in Latin America, Mercado Bitcoin. Market analysts praise the potential of this deal for the future of Coinbase.
Shares of Coinbase (COIN), which gained 13.9% over the past week on the back of Bitcoin's rise, jumped 7.87% on Monday after news of a potential acquisition of Brazilian holding company 2TM, which owns crypto broker Mercado Bitcoin.
According to Bloomberg, negotiations between the companies have been underway since last year and there is a high probability that a deal could be concluded by the end of April.
In addition to Mercado Bitcoin, the largest cryptocurrency exchange in Brazil, 2TM holding owns such financial companies as Meubank, Bitrust, Blockchain Academy, Portal do Bitcoin, and some others. 2TM's valuation exceeds $1 billion.
The potential for buying Mercado Bitcoin for Coinbase is great considering that the Brazilian crypto broker added 1.1 million customers in 2021 alone, increasing its audience to 3.2 million. Meanwhile, trading volume on its platform reached $7.1 in the same year billion
The Latin American market is very attractive for Coinbase, as the region is rapidly growing in demand for the services of crypto exchanges and fintech companies, with services that are alternative to banking. Traditional banks in the region are notorious for charging high fees for their products and making it difficult for regular customers to access banking services.
In recent years, many venture capital firms and other players such as Warren Buffett's Berkshire Hathaway (BRKB, BRK.A, BRK.B) have invested in start-up banking companies in the region.
Brazil is also the leader in digital payments in Latin America. The Pix platform alone recently reached over 104 million users. That's a huge reach considering Brazil's population was around 214 million in January.
In addition, another cryptocurrency exchange, Binance, estimates that the potential of the cryptocurrency market in Latin America will reach more than $25 billion.
Coinbase shares went public on the Nasdaq in April last year and have since fallen nearly 40%.
The company's business is still very dependent on the price of bitcoin and other cryptocurrencies. According to Goldman Sachs, Coinbase stock is one of the most closely associated with bitcoin's price action. Analysts say technical factors in bitcoin's price movement point to further gains, which could lift Coinbase shares as well.
Last week, a number of Wall Street analysts rated Coinbase stock as Buy and Outperform, with an average price target of $316.27 suggesting 57% upside potential. Coinbase's stock price at the close of trading on Monday was $201.41
Overall, experts point out that growing and expanding market share is critical to maintaining Coinbase's dominance in the increasingly competitive cryptocurrency market.
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