JP Morgan lowers Coinbase forecast over 'prisoner's dilemma' deal

JP Morgan has downgraded its earnings forecast for Coinbase, citing a new agreement with Hyperliquid that it says has created a profit-eroding "prisoner's dilemma" for both Coinbase and Circle. Under the new terms, Coinbase will exclusively receive all interest income generated from USDC held on Hyperliquid, but will then pay 90% of that revenue to Hyperliquid. Previously, Coinbase and USDC issuer Circle split such interest income 50/50. The move comes as Hyperliquid has emerged as a key distribution channel for USDC, holding approximately $6 billion, or 8% of the stablecoin's total circulating supply. JP Morgan noted that the deal effectively forces Coinbase and Circle into a competitive race to expand USDC's reach, sacrificing their own profitability in the process. The investment bank warned that this arrangement could become a long-term headwind, particularly as the crypto market slows and USDC's circulation has already declined to $73 billion amid the rise of regulatory alternatives.