Court Ruling Impacts Coinbase and MicroStrategy
The recent court ruling on Grayscale's Bitcoin trust has varying impacts on Coinbase and MicroStrategy, with potential benefits for one and uncertainty for the other.
Both Coinbase Global and MicroStrategy experienced a surge in their stock prices following a recent court ruling in favor of the crypto industry. However, the implications for each company vary significantly. While MicroStrategy stands to benefit from the ruling, the same cannot be said for Coinbase.
On Tuesday, a federal court ruled that the Securities and Exchange Commission's denial of Grayscale's request to convert its popular Bitcoin trust into an exchange-traded fund (ETF) was arbitrary. This decision sent shockwaves throughout the crypto community as it increases the likelihood of a spot Bitcoin ETF gaining approval. Investors have long awaited a regulated investment vehicle for Bitcoin, as it would align with traditional financial products and could potentially drive up digital asset prices. Notably, BlackRock and other financial companies have also applied for their own versions of such funds.
The announcement of the court ruling led to a surge in Bitcoin prices, as well as the shares of crypto broker Coinbase (COIN) and MicroStrategy (MSTR), a business intelligence company led by Bitcoin advocate Michael Saylor. MicroStrategy, in particular, experienced a notable increase of 11% on Tuesday before dipping by almost 3% on Wednesday.
According to Mark Palmer, an analyst at Berenberg, the boost in MicroStrategy's stock price is expected and justified. Palmer stated in a note on Wednesday that the current market response aligns with expectations. Berenberg rates MicroStrategy as a "Buy" with a target price of $510. On Wednesday, the shares opened at $375.10, reflecting their positive outlook.
MicroStrategy holds an impressive number of Bitcoin tokens, with a value of approximately $4.2 billion at current prices. These holdings make up a significant portion of the company's $5.2 billion market capitalization as of the end of July. Consequently, any development that benefits Bitcoin is also beneficial for MicroStrategy.
However, the situation is different for Coinbase. Berenberg rates the shares of Coinbase as a "Hold" with a price target of $39. Although the stock saw a 15% surge in the previous session, opening at $83.56 on Wednesday, the future remains uncertain for Coinbase in light of the court ruling.
In conclusion, the recent court ruling regarding Grayscale's Bitcoin trust has had varying impacts on different market players. While MicroStrategy is expected to benefit from the decision due to its extensive holdings of Bitcoin, the same cannot be said for Coinbase. Investors will closely monitor the development of a spot Bitcoin ETF as it unfolds, as it has the potential to reshape the landscape of digital asset investing.
Investors reacted strongly to the recent Grayscale ruling, perceiving it as a setback for the regulator and a potential blow to Coinbase, which is currently facing legal action. However, experts argue that the connection between the Grayscale ruling and the SEC's case against Coinbase is unfounded.
Coinbase, on the other hand, views the ruling as a positive development. The company's chief legal officer suggests that the SEC needs to reevaluate its enforcement approach and its evaluation of crypto-related applications.
Although Coinbase is expected to serve as the custodian for Bitcoin held by spot Bitcoin ETFs, analysts at Berenberg believe that the optimism surrounding this role may be exaggerated. They do not consider the additional revenue from this endeavor to be a game-changer for the company. Despite this, the stock has experienced significant gains since BlackRock's application, partly due to other potential sources of revenue, such as selling market data to ETF providers.
Ironically, Michael Palmer, an analyst at Berenberg, posits that Coinbase itself may pose a risk to the approval of spot Bitcoin ETFs. The ongoing battle between Coinbase and the SEC regarding the classification of digital assets as securities could influence the agency's decision to reject ETF applications.
Coinbase has not provided a comment on this matter at the time of writing.
It is worth considering that although the SEC may have suffered a short-term setback, it is plausible that they will find alternative arguments to justify rejecting spot Bitcoin ETF applications, according to Palmer.
Overall, if the SEC continues to reject these applications, it could have negative implications for Bitcoin, MicroStrategy, and Coinbase.