Coinbase Global Inc. (NASDAQ: COIN) pulled back after rocketing nearly 15% higher on August 29 on news that a potential launch of a long-awaited Bitcoin ETF may be getting closer.
Investors were initially excited about what a new ETF might mean for Coinbase, but their expectations clearly came back down to earth. Coinbase still finished the week ending September 1 with a gain of 5.02%.
On August 29, a federal court brushed aside a Securities and Exchange Commission motion to stop Grayscale Investments’ plans to convert the Grayscale Bitcoin Trust (OTCMKTS: GBTC) to an exchange-traded fund.
Shares of the Grayscale Bitcoin Trust also leaped on the news. With assets under management north of $16.3 billion, it’s the largest Bitcoin fund.
A Slew Of Bitcoin ETFs To Launch?
Grayscale also runs other digital asset funds, so it wouldn’t be surprising to see the asset manager launch additional ETFs over time.
The SEC previously gave the nod to futures-backed Bitcoin ETFs, which became available in 2021. The regulator hasn’t yet OK’d spot Bitcoin ETFs. The phrase “spot bitcoin” refers to the immediate purchase or sale of actual Bitcoin at the current market price, as distinct from futures or derivatives.
On August 31, the SEC said it was delaying action on existing Bitcoin ETF applications.
There’s significant interest in launching new Bitcoin funds: Several asset managers, including Fidelity, Invesco Ltd. (NYSE: IVZ), BlackRock Inc. (NYSE: BLK), VanEck and WisdomTree (NYSE: WT) have submitted applications, which the SEC says it will evaluate by October 19.
Its original deadline was September 2.
BlackRock, Invesco and Wisdom Tree all rose on August 29 and finished the week higher, but the broader market also rallied. It’s unlikely that the asset managers’ upticks were due to a future ETF with an unspecified launch date.
Making Bitcoin Easier To Purchase
When spot Bitcoin funds are eventually launched, that will make the cryptocurrency significantly easier for many investors to purchase. For example, many curious investors would view that as a more accessible way to dabble than using an exchange such as Coinbase. As funds buy up the asset to meet investor demand, that could result in a significant price increase.
That’s what caused the initial euphoria among buyers of Coinbase stock on August 29.
After Coinbase’s initial uptrend, investors seemed to come back to reality.
In June, the SEC charged Coinbase with operating an unregistered securities exchange, clearing firm, and brokerage. The agency also charged Coinbase with selling unregistered securities.
You can see on the Coinbase chart that shares initially gapped down in June on news of the SEC action, but the stock has rallied back, advancing 27.97% in the past three months and 124.92% year-to-date.
Shares of other Bitcoin-related stocks Marathon Digital Holdings (NASDAQ: MARA) and Riot Platforms Inc. (NASDAQ: RIOT), also rallied on the Grayscale news. However, both showed the same trading pattern as Coinbase as they retreated in subsequent sessions.
Analysts Say "Hold"
Coinbase, which boasts a market capitalization of $18.50 billion, is the largest of those companies and has attracted significant analyst coverage.
MarketBeat’s Coinbase analyst ratings show a consensus view of “hold,” and there have been no analyst actions since the August 29 court decision.
However, at least one analyst expressed his skepticism about Coinbase’s rally.
Mizuho Securities Dan Dolev called the move a “knee-jerk reaction and short covering….”
One Analyst Doesn't See Upside
On August 23, ahead of the court ruling, Mizuho reiterated its “underperform” rating on Coinbase. Mizuho’s price target is $27, a downside of 64.55%. That’s a pretty big view of future underperformance.
The consensus price target is $77.38, 61 cents below where the stock closed on September 1.
As its fortunes are tied to those of notoriously erratic cryptocurrencies, Coinbase is a volatile stock. Its beta is 2.73.
A high beta investment is more volatile than the broader market, meaning investors can expect greater price swings, offering the potential for higher returns but also increased risk.
