Coinbase’s Soaring Stocks: Factors Driving the Rise and Competitor Woes

Founded in 2012, Coinbase has long positioned itself as a cryptocurrency company that complies with all regulatory requirements. It refrains from listing crypto assets considered unregistered securities by regulators.

Coinbase, one of the first cryptocurrency companies whose stocks became tradable on NASDAQ, attracted attention for being the first crypto exchange listed in the U.S. Analyst Victor Pershikov notes that it draws investor interest, especially due to the lack of competitors with similar businesses. Besides Coinbase, the list of crypto-oriented companies is limited to public miners and those holding Bitcoin on their balance sheets. Major players include Tesla, MicroStrategy, Riot Platforms, and Marathon Digital.

The recent surge in Coinbase’s stocks can be attributed to several factors, according to Pershikov. Firstly, significant investments from large investment funds have been pouring into COIN since its listing, with many funds increasing their stake in the exchange. Secondly, the positive correlation between their price and Bitcoin’s value leads to an increase in crypto-oriented stocks, including COIN, amid the cryptocurrency market’s upward trend. Additionally, the fact that companies awaiting approval for spot Bitcoin ETFs have chosen Coinbase’s custody solution serves as a positive fundamental factor.

In 2023, several major financial institutions filed applications to launch their Bitcoin exchange-traded funds (ETFs), and the first approvals may occur in the first quarter of 2024. The launch of such ETFs is considered a catalyst for a new bullish cycle in the crypto market.

Custodial storage is a crucial part of bringing spot Bitcoin ETFs to the U.S. market. Custodians hold assets on behalf of another entity, and in this case, it involves safeguarding billions of dollars worth of Bitcoin against loss, theft, or hacking. Currently, Coinbase is the custodian for nine out of the 12 Bitcoin ETFs awaiting approval in the U.S., including the upcoming ETF from BlackRock.

“The market situation undoubtedly influences the company’s stock value, but only indirectly,” argues Nikita Zuborev, Senior Analyst at Bestchange.ru. “The higher the cryptocurrency prices, the more clients and transactions for the exchange, making the conditions favorable for the platform.”

On the flip side, crypto company stocks are viewed by individual investors as a completely legal and straightforward way to invest in the crypto sphere. Since they are listed on traditional exchanges and comply with all financial regulators’ requirements, they offer a legal and accessible investment route, Zuborev adds. Therefore, as interest in cryptocurrencies grows, there is a strengthening positive trend for crypto company stocks. While this phenomenon alone may not be sufficient to establish a trend, it certainly has the potential to amplify other positive factors.

Competitor Troubles: Coinbase’s CEO, Brian Armstrong, expressed optimism in an interview with CNBC, stating, “We witnessed the moment when actions against Binance allowed us to turn the page and, hopefully, close this chapter in the history of cryptocurrencies.”

In 2017, Changpeng Zhao (CZ), who had previously worked as a programmer at the Tokyo Stock Exchange and Bloomberg Trading, launched Binance through an initial coin offering (ICO). Binance quickly surpassed Coinbase’s relatively brief dominance in the crypto market. At its peak, Binance held 60% of the global cryptocurrency trading volume, and its market share still exceeds 40%.

With no unified official headquarters or conventional board of directors, and affiliated entities scattered across different jurisdictions, Binance’s structure provided it with the ability to navigate regulatory restrictions and, at times, the law, according to U.S. authorities. According to the U.S. Department of Justice, this approach allowed CZ to propel Binance to the forefront of cryptocurrency trading and more complex financial instruments associated with crypto assets.

Armstrong recently wrote on the X social network (formerly Twitter) that going public in the U.S. meant Coinbase “could not always act as fast as others.” According to him, a compliance-focused approach to operations is more complex and expensive. “You can’t launch [on the exchange] a product that customers want if it’s illegal,” he added.