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Analysts suggest that cryptocurrency custodian BitGo may be a possible acquisition candidate for Wall Street companies.
Compass Point and Canaccord identify BitGo as a potential acquisition target and support the stock despite its lackluster debut, highlighting growth in institutional crypto infrastructure.
What to know:
- Analysts on Wall Street suggest that BitGo’s move into comprehensive institutional crypto finance may drive sustained growth and render it an appealing acquisition candidate for conventional financial entities.
- Experts contend that investors are underestimating BitGo’s ability to cross-sell prime brokerage-type services, which could significantly enhance revenue if it manages to close the gap with competitors such as Galaxy and Coinbase.
- Despite BitGo’s shares declining over 40% since its initial public offering in January, some analysts perceive the market reaction as excessive and maintain their buy ratings, citing the company’s strong competitive position and strategic importance for major banks entering the crypto sector.
Wall Street analysts are optimistic that BitGo’s initiative in full-service institutional crypto finance will not only drive long-term growth but also establish the company as a key acquisition target for traditional financial firms.
Ed Engel, an analyst at Compass Point who has a buy rating on the stock, indicated that the firm’s offerings could appeal to traditional institutions seeking to provide crypto solutions for their clientele.
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"We … consider BTGO an optimal M&A target for Wall Street firms venturing into crypto. BitGo provides a comprehensive range of services that could be incorporated into traditional prime brokers, and new entrants might acquire BitGo to offer these solutions to their clients," the analyst stated.
BitGo was among the first digital asset companies to go public this year, delivering custody and security services for digital assets, primarily aimed at institutional clients. The IPO represented one of the initial instances where public equity investors could obtain direct exposure to crypto infrastructure, positioning BitGo as a link between traditional finance and digital assets as more financial institutions delve further into the digital asset arena.
The infrastructure aspect is one of the elements Engel mentioned as potentially offering more growth, pointing out that investors are overly fixated on its core custody operations rather than BitGo’s "opportunity to cross-sell prime services." The analyst even drew a comparison to Galaxy (GLXY) and Coinbase’s (COIN) prime brokerage offerings, highlighting that Galaxy’s average revenue per trading counterparty is approximately “6x BitGo’s, suggesting considerable upside,” for BitGo, if the company is able to enhance its services.
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The company’s competitive edge and acquisition potential were affirmed by at least one other analyst from a Wall Street investment bank.
"We believe BitGo’s competitive advantage is robust, but more critically, we view the company as a potentially attractive time-to-market asset for major traditional finance players aiming to enter this sector rapidly,” stated Canaccord Genuity in a report. The analyst has set a price target of $15 and maintains a buy rating on the stock.
BitGo’s acquisition potential has precedents.
In May 2021, Galaxy Digital announced it had agreed to acquire the firm for $1.2 billion, but later withdrew from the agreement after Galaxy claimed BitGo failed to deliver financial statements by a deadline at the end of July. With the company now public, those concerns may no longer pose an issue.
BitGo’s shares have declined over 40% since the company priced its January IPO at $18 per share, currently trading around $10.26. Meanwhile, bitcoin has fallen roughly 24% year-to-date, Galaxy has decreased by approximately 9%, and Coinbase has dropped nearly 30% amid a wider crypto market downturn.
The IPO valued the company at $2 billion, but following the recent decline, the stock’s market capitalization is now about $1.24 billion, aligning it closer to the valuation associated with the aborted Galaxy acquisition.
Nonetheless, Canaccord perceives BitGo’s underperformance as a market overreaction. "BTGO shares… have reacted much more severely than any short-term P&L trajectory weakness would justify,” commented the investment bank’s analyst, defending the stock.
BitGo currently has 10 analysts covering its stock, with nine buy ratings and one hold rating, based on FactSet data. Analyst price targets range from $12 to $18 per share, indicating that the stock could still appreciate by 17% to 75% from current levels.
Read more: Crypto M&A Heats Up as Big Banks and Fintechs Race to Scale
