Shares in
Coinbase Global
have soared since financial giant
BlackRock
filed for a spot Bitcoin exchange-traded fund (ETF) with the cryptocurrency broker as a custodian. There are reasons to believe the fervor may not last, one analyst said.
Coinbase
(ticker: COIN) stock has rallied more than 30% since June 15, when
BlackRock
(BLK) made the filing, with shares in the group up another 2.5% in U.S. premarket trading on Thursday.
BlackRock’s filing is meaningful not only because it represents a major move in crypto from one of the biggest players in finance, but also because the application includes a new market surveillance mechanism that crypto bulls hope regulators will like. While Bitcoin futures ETFs have been approved in the past, a fund that holds Bitcoin itself has yet to be waved through by the Securities and Exchange Commission.
Coinbase stock has advanced, just like
Bitcoin,
amid a new wave of digital asset bullishness, but “enthusiasm for Coinbase may prove short-lived,” Berenberg analyst Mark Palmer wrote in a Wednesday note. He rates Coinbase Hold, with a price target of $39 on the stock. The shares closed above $70 on Wednesday.
“We believe investors looking at Coinbase as a play on increasing engagement by institutions with the digital asset ecosystem should first consider the risks the company is facing that could give rise to negative headlines in the near future that would trigger a reversal of the stock’s recent gains,” Palmer said.
His cautious stance boils down to the fact that the broker has been charged by the SEC in a lawsuit that threatens its core business.
It’s likely that cease-and-desist orders on Coinbase’s interest-bearing “staking” services—a moneymaker for the broker and a subject of both SEC and state regulatory scrutiny—are coming, Berenberg believes.
Coinbase declined to comment on its financials, citing a quiet period ahead of its next quarterly earnings release.
If Coinbase has to halt its staking service, this potential loss of revenue is much more than any upside from the broker’s role as a custodian for the potential BlackRock ETF, which has yet to be approved by regulators, Palmer said.
“We believe investors looking to invest in Coinbase based on the potential revenue impact from this role should first assess the math around that arrangement, which may not move the needle as much as they think it would,” Palmer said.
It’s enough to give investors pause amid the pile-on in Coinbase stock.
Write to Jack Denton at jack.denton@barrons.com
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