Wall Street analysts are betting that BitGo’s push into full-service institutional crypto finance will not only fuel long-term growth but also position the company as a prime acquisition target for traditional finance firms.
Compass Point analyst Ed Engel, who has a buy rating on the stock, wrote that the firm's services could be attractive to traditional firms looking to offer crypto products to their clients.
"We ... view BTGO as an ideal M&A target for Wall Street companies expanding into crypto. BitGo offers a full suite of services that could be integrated into traditional prime brokers and new entrants could acquire BitGo to provide these solutions to clients," the analyst wrote.
BitGo was one of the first digital asset firms to go public this year, providing custody and security services for digital assets, primarily catering to institutional clients. The IPO marked one of the first times public equity investors could gain direct exposure to crypto infrastructure, making BitGo the bridge between traditional finance and digital assets as more financial firms push deeper into the digital asset space.
The infrastructure play is one of the points Engel said could offer more upside, noting that investors are overly focused on its core custody business rather than BitGo's "opportunity to cross-sell prime services." The analyst went as far as comparing it to Galaxy (GLXY) and Coinbase's (COIN) prime brokerage services and noting that Galaxy’s average revenue per trading counterparty is “~6x BitGo’s, implying significant upside," for BitGo, if the firm is able to ramp up its services.
The company's competitive advantage and acquisition potential were echoed by at least one other Wall Street investment bank's analyst.
"We believe BitGo’s competitive moat is solid, but more importantly we believe the company could make an attractive time-to-market asset for major Tradfi players looking to enter this market in an expedited manner,” said Canaccord Genuity in a note. The analyst has a $15 price target and a buy rating on the stock.
BitGo's acquisition potential isn't without precedent.
In May 2021, Galaxy Digital said it agreed to buy the firm for $1.2 billion, but later abandoned the deal after Galaxy said BitGo had failed to provide financial statements by a deadline at the end of July. With the stock being public, those concerns may no longer be an issue.
BitGo's stock has dropped more than 40% since the company set its January IPO at $18 per share, now trading near $10.26. Meanwhile, bitcoin BTC$67,701.60 has declined about 24% year-to-date, Galaxy fell about 9% and Coinbase tumbled nearly 30% amid a broader crypto market selloff.
The IPO valued the firm at $2 billion, but after the recent selloff, the stock's market cap is currently about $1.24 billion, bringing it closer to the valuation near the failed Galaxy deal.
However, Canaccord sees BitGo's underperformance as an overreaction by the market. "BTGO shares... have reacted much more severely than any shorter term P&L trajectory weakness might warrant,” the investment bank's 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 by 17% to 75% from current prices.
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