Following a declining trend in 2022, the Coinbase shares price has been on a march since the beginning of 2023, as cryptocurrencies in general soar.
While regulatory concerns may derail the surge, Coinbase stands to benefit in the long run.
Cathie Wood has been buying Coinbase (COIN) shares in recent weeks, indicating that she believes the crypto exchange platform would gain from the industry’s resurgence.
According to trade updates, Wood’s flagship Ark Innovation ETF (ARKK) purchased more than 253,000 shares between February 10 and 14. At the same time period, the Ark Next Generation Internet ETF (ARKW) purchased over 42,000 shares.
The long-term crypto bull appears to have taken advantage of a minor drop in the Coinbase share price.
While the stock is up 84.2% year to date, closing at $65.20 on 17 February, it has dipped from its year-to-date high of $87.63 on 3 February.
The stock fell 5.4% on February 16th, possibly in response to a downgrade by DA Davidson – from ‘buy’ to ‘neutral’ – before the company’s fourth quarter (Q4) earnings, which are expected to be released after the market closes on Tuesday.
Ready for a Coinbase Comeback?
Last year, Coinbase came under fire following a drop in Bitcoin and Ethereum prices, as well as a larger market sell-off caused by investors withdrawing their crypto assets from exchanges to avoid being caught up in the FTX collapse.
Because of this declining tendency, Coinbase laid off 20% of its workers in January. But, in an email to workers, co-founder and CEO Brian Armstrong emphasized that “crypto isn’t going anywhere” and that operational efficiency will be critical to Coinbase weathering the storm and emerging stronger.
“Over the last decade, Coinbase has survived many downturn markets utilizing this technique,” Armstrong wrote.
He also stated that stronger blockchain regulation should assist Coinbase by weeding out undesirable participants in the industry.
Yet, caution will most certainly prevail in the near future. According to DA Davidson analyst Christopher Brendler, Coinbase’s share price increases this year have highlighted “an unfavorable risk/reward,” with Brendler expecting dismal Q4 earnings and 2023 projections.
SEC Issues
There are indications that the United States is tightening its crypto regulations.
The Securities and Exchange Commission (SEC) has charged crypto exchange Kraken with failing to register its ‘staking-as-a-service’ product – staking is the practice of using crypto assets to authenticate transactions on a blockchain.
Kraken agreed to pay $30 million in fines and to shut down the unregistered securities product on February 9th.
Following the announcement, Piper Sandler analyst Richard Repetto reiterated Coinbase’s ‘overweight’ recommendation.
Given that “COIN has long touted the regulatory compliance of its crypto products [and] services, platform, and general operations“, wrote Repetto in a note to clients seen by StreetInsider, as the SEC moves toward “what appears to be a more aggressive stance on crypto regulation, we are cautiously optimistic that COIN won’t be weighed down by recently increased scrutiny around staking”.
Nonetheless, CEO Brian Armstrong feels that the SEC potentially prohibiting US retail investors from participating in staking would be a “bad road” to take.
“With no clear [regulations] on crypto and a hostile regulatory environment, America risks losing its long-term role as a financial center,” he tweeted.
Despite the SEC’s crackdown, which has created regulatory uncertainty, analysts are generally optimistic about Coinbase.
According to MarketBeat statistics, the stock has ten ‘buy’ recommendations, ten ‘hold’ ratings, and five ‘sell’ ratings.
The consensus price target of $75.38 is a 15.6% increase over the most recent closing price.
Significant ETF Holdings
Coinbase is the seventh-largest investment in Cathie Wood’s Ark Innovation ETF, with a weighting of 5.03% as of 17 February.
Year to date, the fund is up 34%. With a weighting of 6.85%, the stock is the fourth-largest holding in the Ark Next Generation Internet ETF.
Year to date, the fund is up 37.7%.
Coinbase accounts for 13.13% of the portfolio in the iShares Blockchain and Tech ETF [IBLC]. In 2023, the fund has increased by 59.8%.
The fund having the most exposure to Coinbase, accounting for 17.91% of its portfolio, is the First Trust SkyBridge Crypto Industries and Digital Economy ETF [CRPT], with Coinbase ranking second.
Year to date, the fund has gained 47.7%.
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