The extreme decline in cryptocurrency markets in the second quarter of this year combined with Coinbase’s (COIN) ramp up in investment, means it will be challenging for the exchange to generate a profit in the near term, JPMorgan said in a report Tuesday.

The broker cut its rating on the stock to neutral from overweight and slashed its price target to $68 from $171.

Since the company generates a large part of its revenue from the value of crypto token prices – from trading, staking, custody – and much of the rest based on sentiment, the recent downturn is likely to have a “material negative impact on Coinbase revenue,” the report said.

JPMorgan estimates that trading volumes on Coinbase have fallen more than 30% in the second quarter of this year, following a 40% decline in the first.

Coinbase has significantly increased the pace of investment in recent quarters, hiring 3,200 staff over the last year, with 1,200 hired in the first quarter alone, the note said. This is a huge amount of recruitment for the exchange, which now has around 5,000 employees, the note added.

However, Coinbase had later paused recruitment and rescinded some job offers following the recent market downturn, as reported. The hiring freeze should stop expense growth from mid-May, JPM noted.

Coinbase may need to do more than just implement a hiring freeze, and may have to reduce expense levels to keep Ebitda losses within its $500 million guidance cap for 2022, it added.

Against this backdrop of a more difficult macro environment, the bank notes that FTX has overtaken Coinbase in terms of crypto-activity in May and FTX has continued to outpace Coinbase in June.

Coinbase shares fell close to 6% in premarket trading to $49.09.

CORRECTION (June 14, 11:56 UTC): Corrects share fall in 9th paragraph.

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