Goldman Sachs downgrades Coinbase, upgrades Robinhood

Goldman Sachs analyst Will Nance downgraded Coinbase Global Inc. to "sell" from "neutral" and upgraded Robinhood Markets Inc. to "neutral" from "sell."

Nance lowered his price target for Coinbase to $45 from $70 and said the current cryptocurrency asset levels and trading volumes imply a "further degradation" in the company's revenue base.

Coinbase announced in mid-June that it plans to lay off about 18% of its workforce, but the Goldman Sachs analyst said the company would need to make "further cuts" given that its announced cost reduction effort only moves it to the low end of its previous expense guidance.

"We believe [Coinbase] will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up," Nance wrote.

Additionally, the analyst is increasingly "more bearish" on the competitive environment and the fee rate compression outlook considering the merging of the Coinbase and Coinbase Pro platforms. The move will possibly reduce switching costs and ease the availability of lower pricing to users, according to Nance.

The Goldman Sachs analyst also reduced his price target for Robinhood to $9.50 from $11.50.

Though Nance now sees a "more balanced" risk-reward, the analyst views Robinhood's fundamentals as "still very weak" with the continued decline in retail trading risk appetite weighing on active users and margin balances. However, higher interest rates could fuel an increase in net interest income over the next few quarters and aid in reducing the company's losses to a manageable level, Nance added.

"Longer term, we believe [Robinhood] needs to see progress on more recurring revenue streams and a return to user growth and engagement levels for shares to outperform," the analyst wrote.

At 1:25 p.m. ET, Coinbase shares were down 9.54%, while Robinhood shares were up 4.94%.