Coinbase (COIN) and Bitcoin (BTC) experienced a surge in prices at the end of August due to a ruling by the U.S. Court of Appeals in favor of Coinbase in the ongoing Grayscale vs. SEC battle. The ruling concerned Grayscale’s proposal to convert its GBTC Trust into a spot exchange-traded fund (ETF). Following the ruling, COIN gained 15%, GBTC gained 19%, and BTC gained 7.3%. However, these gains have mostly receded due to the macroeconomic climate and continued resistance from the SEC to approve spot bitcoin ETFs.
The SEC has postponed decisions on similar applications from BlackRock and Fidelity, and it remains uncertain what will happen with the GBTC application as the SEC has a few more weeks to appeal the ruling. Even if the ruling stands on an SEC appeal, it wouldn’t result in an immediate conversion of trust units into ETF units, but it would increase the likelihood of such a conversion in the future. If the SEC approves the conversion, current GBTC holders would not be required to do anything or be exposed to any tax events.
This ruling could have an impact on the cryptocurrency market, specifically on Coinbase’s stock. Coinbase, with a market cap of $19 billion, is trading on Nasdaq at around $70 per share. It has a three-month average trading volume of 13.8 million shares and manages about $128 billion in total assets. Coinbase has performed well in 2023, up over 140% year to date, but it is still trading below its 2021 highs above $350 per share.
The initial rally in 2021 was driven by exceptional business metrics reported by Coinbase, including a significant increase in trading volume and assets on the platform. Other factors that fueled the boom in the broader crypto market included Bitcoin crossing the $1 trillion mark in market value, the NFT boom, and large corporate purchases of Bitcoin by companies like MicroStrategy and PayPal.
A spot ETF approval could be bullish for Coinbase, as it is the chosen custodian for most spot-ETF applications with the SEC. An increase in the price of Bitcoin could also lead to higher trading volume for Coinbase. However, it is worth noting that first-time investors may choose to buy spot ETFs directly through their brokerage accounts, potentially reducing demand for Coinbase’s services.
Currently, the SEC has approved Bitcoin futures-based ETFs, but spot Bitcoin ETFs have not yet been approved. Among the Bitcoin futures ETFs trading in the U.S., the ProShares Bitcoin Strategy ETF dominates the market with about $890 million in assets under management. Grayscale Investments is also trying to get the SEC’s approval to convert its GBTC into an ETF.
The recent ruling in favor of Grayscale is positive news for the cryptocurrency market, and if the SEC approves a spot Bitcoin ETF, it would be beneficial for both cryptocurrencies and exchanges like Coinbase.
The consensus price target for Coinbase stock is $88.29 per share, with consensus revenue estimated to be between $2.21 billion and $3.63 billion. However, from a valuation perspective, it may not be the best time to invest in Coinbase, as its current stock price is trading above the sector median based on enterprise value-to-sales and price-to-sales multiples.
Overall, the ruling on the Grayscale vs. SEC battle could have implications for the cryptocurrency market, specifically Coinbase. However, investors should consider the current market conditions and valuation metrics before making any investment decisions in COIN stock.