Florida-based financial services company Raymond James initiated coverage of Coinbase’s COIN stock, giving it an “underperform” rating due to concerns that competition will drive down the company’s transaction-based profits.

In a note to clients on Wednesday morning, analyst Patrick O’Shaughnessy wrote that a lack of barriers to entry makes competition inevitable and the exchange’s revenue will consequently be reduced. It is COIN’s first “underperform” rating, according to data cited by CNBC. 

According to Raymond James' definition, "underperform" means the stock is expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.

“We don’t see a structural barrier to entry here and therefore expect significant pricing degradation over time, with growth in non-transaction revenues hard-pressed to offset this,” O’Shaughnessy wrote. Though the exchange is, in O’Shaughnessy’s words, “hyperaggressively working to expand and diversity its sources of revenue,” he sees price compression as inevitable.

Coinbase’s revenue is largely based on trading fees that are already notoriously high by industry standards. Though the exchange has a significant first-mover advantage, impressive earnings and a robust institutional arm, the declining price of COIN could be a sign that competition is heating up.

COIN went live at an opening price of $381 on April 14, up from a reference price of $250 per share set by the Nasdaq on April 13. The stock quickly pushed to highs of around $430 per share before closing at $328. Today, the stock is trading at approximately $225 per share.

Before the launch of COIN in April, analysts debated the firm’s $100 billion estimated valuation, with some saying it was undervalued and others claiming it was worth as little as $19 billion. 

Increasing competition in the crypto trading space has given rise to low-fee exchanges and decentralized finance (DeFi) exchanges are also gaining popularity. This follows the same pattern that has been seen in the traditional financial markets, O’Shaughnessy noted, with retail-oriented apps like Robinhood booming in popularity and forcing legacy brokers to lower their fees. Declining revenues led to a wave of mergers in the traditional finance sector. 

If the trend carries over into the crypto industry, a similar consolidation period could be on the horizon for crypto exchanges.

Though O’Shaughnessy did not set a formal price target for COIN, his note suggested a fair market value of approximately $95 per share.