Coinbase stock (NYSE: COIN) gained almost 25% yesterday after a US district judge ruled that Ripple Labs did not violate securities law by selling XRP. It’s a landmark judgment as it deems that Ripple Labs’ token wasn’t a security when it was sold to the public on crypto exchanges.
The US SEC has been on a literal warpath with cryptos and sees them as securities and by its extension under its jurisdiction. It is the first time that a court has ruled against the SEC and said that XRP is not a security.
The ruling led to a spike in all cryptocurrencies, as well as companies like Marathon Digital Holdings, Riot Platforms, and MicroStrategy which are crypto plays. Coinbase’s price action meanwhile stands out as it added almost a quarter to its market cap.
Coinbase stock rises after court rules that XRP is not a security
Coinbase has itself been at the receiving end of the SEC’s crackdown on cryptocurrencies and last month the agency sued it for allegedly breaking US security laws.
In its complaint, the SEC alleged that Coinbase let its customers trade in multiple cryptos which were unregistered securities.
“Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets,” said the SEC in its 101-page long chargesheet filed in the federal court.
It added, “All the while, Coinbase has earned billions of dollars in revenues by, among other things, collecting transaction fees from investors whom Coinbase has deprived of the disclosures and protections that registration entails and thus exposed to significant risk.”
Notably, SEC’s lawsuit against Coinbase came a day after a similar lawsuit against Binance. The SEC has cracked down on cryptocurrencies over the last year and had previously sent a Wells Notice to Coinbase.
Crypto winter and regulatory crackdown took a toll on COIN’s earnings
The crypto winter and regulatory crackdown have taken a toll on Coinbase’s earnings. It reported a net loss of $2.62 billion in 2022 compared with a net profit of $3.15 billion in 2021. Last year, the company posted an adjusted EBITDA loss of $371 million – versus a positive adjusted EBITDA of $4.09 billion in 2021.
However, its Q1 2023 earnings showed that things were stabilizing. Also, Coinbase is tightening its belts and focusing on cost cuts to return back to profitability. In the first quarter of 2023, its revenues rose 22% to $736 million – which was far ahead of the $655 million that analysts expected.
Also, its net loss of $79 million was much narrower than what the markets expected – largely because of the cost cuts. Despite the 22% rise in revenues, Coinbase’s operating expenses fell 24% which helped it post an adjusted EBITDA of $284 million.
In its shareholder letter, Coinbase said, “This quarter represented a turning point in our drive towards building a company that is more efficient and financially disciplined; a company that is able to do more for less. We reduced costs, doubled down on operational excellence and risk management, and continue to drive product innovation and regulatory clarity.”
Analysts on Coinbase stock
While Coinbase soared yesterday, Wall Street analysts look apprehensive about the stock. Yesterday, Barclays analyst Benjamin Budish downgraded COIN stock from equal weight to underweight while raising the target price from $63 to $70.
“While we continue to believe Coinbase is a likely longer-term winner in the broader crypto ecosystem, fundamentals remain challenged, and recent relief from price actions, increasing rates, and cost rationalization likely have little further to run,” said Budish in his note.
Barclays advised investors to sell COIN stock ahead of the upcoming Q2 earnings and said that while there are “some rays of sunshine, but we’re still in winter” – alluding to the crypto winter.
Earlier this week only, Atlantic Equities also lowered Coinbase to a neutral and said, “While the tenets of our recent upgrade remain in place, the risk/reward looks less attractive at this level given continued regulatory challenges ahead and the surprisingly weak volume backdrop.”
Bank of America on COIN stock
While there has been a lot of excitement over the launch of bitcoin ETFs, Bank of America believes that COIN stock is set to fall even if the ETFs are approved.
“Despite 2Q data suggesting COIN will materially miss top-line estimates, COIN shares have rallied ~60% since 6/15 on the news of spot Bitcoin ETF applications filed by Blackrock and others. Assuming these applications are approved, the magnitude of P&L benefit for COIN may not be as significant as what shares seem to be implying, and the SEC lawsuit vs. COIN is ongoing,” said Bank of America analyst Jason Kupferberg in his note.
His target price of $49 is less than half of COIN’s current market price.
Cathie Wood sold some Coinbase shares
Notably, long-time Coinbase bull Cathie Wood also sold $12 million worth of COIN shares earlier this week amid the rally. However, the stock is still the second largest holding in her flagship ARK Innovation ETF (NYSE: ARKK) with Tesla being the largest.
ARK Investment Management is now the second largest stockholder of Coinbase after Vanguard.
Wood sold Nvidia shares in January and missed the humongous rally in its stock which lifted its market cap to $1 trillion. She has however justified her move and said that Nvidia shares are overpriced.
That said, after Nvidia’s bumper fiscal first quarter 2024 earnings multiple analysts raised their target prices on the stock and see more upside ahead for the company.
Meanwhile, Coinbase stock seems to be defying the pessimism has hit a fresh multi-month high yesterday. Markets would next look forward to its Q2 2023 earnings release whose date it hasn’t disclosed yet.
Trusted & Regulated Stock & CFD Brokers
What we like
- 0% Fees on Stocks
- 5000+ Stocks, ETFs and other Markets
- Accepts Paypal Deposits
Min Deposit
$200
Charge per Trade
Zero Commission on real stocks
64 traders signed up today
Visit Now67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Available Assets
- Total Number of Stocks & Shares5000+
- US Stocks
- German Stocks
- UK Stocks
- European
- ETF Stocks
- IPO
- Funds
- Bonds
- Options
- Futures
- CFDs
- Crypto
Charge per Trade
- FTSE 100 Zero Commission
- NASDAQ Zero Commission
- DAX Zero Commission
- Facebook Zero Commission
- Alphabet Zero Commission
- Tesla Zero Commission
- Apple Zero Commission
- Microsoft Zero Commission
Deposit Method
- Wire Transfer
- Credit Cards
- Bank Account
- Paypall
- Skrill
- Neteller
What we like
- Sign up today and get $5 free
- Fractals Available
- Paypal Available
Min Deposit
$0
Charge per Trade
$1 to $9 PCM
Visit Now
Investing in financial markets carries risk, you have the potential to lose your total investment.
Available Assets
- Total Number of Shares999
- US Stocks
- German Stocks
- UK Stocks
- European Stocks
- EFTs
- IPOs
- Funds
- Bonds
- Options
- Futures
- CFDs
- Crypto
Charge per Trade
- FTSE 100 $1 - $9 per month
- NASDAQ $1 - $9 per month
- DAX $1 - $9 per month
- Facebook $1 - $9 per month
- Alphabet $1 - $9 per month
- Telsa $1 - $9 per month
- Apple $1 - $9 per month
- Microsoft $1 - $9 per month
Deposit Method
- Wire Transfer
- Credit Cards
- Bank Account
Share
