Wall Street analysts are betting that BitGo’s push into full-service institutional crypto financing will not only drive long-term growth but also position the company as a prime acquisition target for traditional financial firms.
Compass Point analyst Ed Engel, who has a buy rating on the stock, wrote that the company’s services could prove attractive to traditional companies looking to offer crypto products to their customers.
“We… see BTGO as an ideal M&A target for Wall Street firms expanding into cryptocurrencies. BitGo offers a full suite of services that could be integrated into traditional major brokerages and new entrants could acquire BitGo to provide these solutions to clients,” the analyst wrote.
BitGo was one of the first digital asset companies to go public this year, providing custody and security services for digital assets, primarily for institutional clients. The IPO marked one of the first times that public equity investors were able to gain direct exposure to crypto infrastructure, making BitGo the bridge between traditional finance and digital assets as more financial companies venture deeper into the digital asset space.
The infrastructure play is one of the spots that Engel said could offer more upside, noting that investors are too focused on its core custody business rather than BitGo’s “core services cross-selling opportunity.” The analyst went so far as to compare it to leading brokerage services Galaxy (GLXY) and Coinbase (COIN), noting that Galaxy’s average revenue per trading counterparty is “~6x BitGo’s, implying a significant upside” for BitGo, if the company is able to improve its services.
‘Attractive’ acquisition target
The company’s competitive advantage and acquisition potential were echoed by at least one other analyst at a Wall Street investment bank.
“We believe BitGo’s competitive moat is strong, but more importantly, we believe the company could be an attractive time-to-market asset for major Tradfi players looking to enter this market on an accelerated basis,” Canaccord Genuity said in a note. The analyst has a price target of $15 and a buy rating on the stock.
BitGo’s acquisition potential is not unprecedented.
In May 2021, Galaxy Digital said it had agreed to buy the company for $1.2 billion, but later abandoned the deal after Galaxy said BitGo had not provided financial statements by a deadline in late July. Since the action is public, those concerns may no longer be an issue.
BitGo shares have fallen more than 40% since the company priced its January initial public offering at $18 per share, now trading near $10.26. Meanwhile, bitcoin is down about 24% so far this year, Galaxy is down about 9% and Coinbase is down nearly 30% amid a broader crypto market sell-off.
The IPO valued the company at $2 billion, but after the recent liquidation, the stock’s market capitalization is currently about $1.24 billion, putting it close to the valuation of the failed Galaxy deal.
However, Canaccord considers BitGo’s poor performance to be a market overreaction. “BTGO shares… have reacted much more severely than any weakness in the near-term profit and loss trajectory could justify,” the investment bank analyst said, defending the stock.
BitGo currently has 10 analysts covering the stock, with nine buy ratings and one hold rating, according to FactSet data. Analyst price targets range from $12 to $18 per share, implying the stock could still rise 17% to 75% from current prices.
Read more: Cryptocurrency M&A Heats Up as Big Banks and FinTechs Race for Scale
