Wall Street analysts are betting that BitGo’s rise 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 financial firms.
Compass Point analyst Ed Engel, who has a buy rating on the stock, wrote that the company’s services could be attractive to traditional businesses looking to offer crypto products to their customers.
“We view BTGO as an ideal M&A target for Wall Street firms moving into crypto. BitGo offers a full suite of services that could be integrated with 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 companies to go public this year, providing custody and security services for digital assets, aimed primarily at institutional clients. The IPO marked one of the first times public stock investors were able to gain direct exposure to crypto infrastructure, making BitGo the bridge between traditional finance and digital assets as more financial companies move deeper into the digital asset space.
The infrastructure play is one area that Engel believes could offer more potential, noting that investors are too focused on its core custody business rather than BitGo’s “prime service cross-selling opportunity.” The analyst went so far as to compare it to the prime brokerage services of Galaxy (GLXY) and Coinbase (COIN) and noted that Galaxy’s average revenue per trading counterparty is “~6x that of BitGo, implying significant upside” for BitGo, if the company is able to scale up its services.
“Attractive” recovery objective
The company’s competitive advantage and acquisition potential have been echoed by at least one other analyst at another Wall Street investment bank.
“We believe BitGo’s competitive position is strong, but more importantly, we believe the company could be an attractive time-to-market asset for major Tradfi players looking to enter this market on an accelerated basis,” Canaccord Genuity said in a note. The analyst has a price target of $15 and a buy rating on the stock.
BitGo’s acquisition potential is not unprecedented.
In May 2021, Galaxy Digital said it agreed to buy the company for $1.2 billion, but then abandoned the deal after Galaxy said BitGo failed to provide financial statements by a deadline in late July. Since the stock is public, these concerns may no longer be an issue.
BitGo stock has fallen more than 40% since the company priced its IPO in January at $18 per share, now trading at nearly $10.26. Meanwhile, Bitcoin is down about 24% year-to-date, Galaxy is down about 9%, and Coinbase is down almost 30% amid a broader crypto market selloff.
The IPO valued the company at $2 billion, but after the recent sale, the stock’s market cap is currently around $1.24 billion, putting it close to the valuation of the failed Galaxy deal.
However, Canaccord views BitGo’s underperformance as a market overreaction. “BTGO shares…reacted much more severely than any weakness in the near-term P&L trajectory could justify,” the investment bank 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 between $12 and $18 per share, implying the stock could rise another 17% to 75% from current prices.
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