Shares in Coinbase (ticker: COIN) are surging in tandem with Bitcoin and other digital assets, as the broker becomes caught up in a trading frenzy surrounding the potential launch of spot Bitcoin exchange-traded funds (ETFs). This development is seen as a potential catalyst for a rally in cryptocurrencies.
Coinbase’s stock has already experienced an impressive 118% increase this year as of Monday. In Tuesday’s premarket trading, the stock rose an additional 8%. The surge in the company’s stock price is closely mirroring the upward trajectory of Bitcoin and other digital assets. The largest token has jumped an astounding 13% over the past 24 hours, reaching levels not seen since before the crypto bear market began in May 2022.
Key Role of Coinbase
Coinbase’s shares serve as a proxy for Bitcoin and a broader indicator for the cryptocurrency market. This is due not only to its status as a publicly listed crypto company but also because its core business heavily relies on trading volumes for digital assets. These volumes are directly tied to investor interest. The approval of spot Bitcoin ETFs, which would involve holding the actual token instead of just Bitcoin futures like existing funds, is expected to spark new interest from both retail and institutional investors in Bitcoin.
The Potential Impact of ETFs on Coinbase and the Crypto Space
Even though the ETFs that garner significant interest wouldn’t be traded on Coinbase, their arrival could have a rejuvenating effect on the broader crypto space and lead to a surge in trading volumes. This would greatly benefit Coinbase, as transaction-fee revenue lies at the heart of its business. In fact, according to data provider CoinMarketCap, Bitcoin trading volumes across exchanges have already witnessed a staggering increase of almost 200% in the past 24 hours.
Coinbase isn’t just a bystander in this scenario. The broker has struck deals to serve as the custodian for BlackRock and other financial firms that have applied for SEC permission to launch spot Bitcoin ETFs. This association would bring Coinbase an entirely new source of revenue. Additionally, Coinbase recognizes the potential beyond just providing custody services. Its relationship with ETF providers could open doors for selling valuable market data.
However, investors should approach Coinbase stock with caution. Earlier this year, the company found itself on the receiving end of a lawsuit by the SEC. The lawsuit alleges that Coinbase operates as an unregistered exchange and deals with unregistered securities. While Coinbase vehemently denies these claims, it is anticipated that this legal issue will continue to pose challenges for the company.
Despite regulatory hurdles, rising competition, and a slowdown in its trading business, the shares of Coinbase have already experienced a remarkable ascent. Notably, analysts in August advised investors to steer clear of the stocks.