Coinbase Global Inc (NASDAQ:COIN) investors appear to be undeterred by the existential regulatory threats it faces. After plunging to 2023 lows on June 6, shares of the Nasdaq-listed cryptocurrency exchange have rallied almost 80%. On that day, the US Securities and Exchange Commission (SEC) filed a lawsuit against Coinbase alleging violations of securities laws.
The debate around whether some cryptos are unregistered securities has been ongoing since 2020, but this year the SEC has launched a full-on attack against major crypto exchanges such as Coinbase, Binance, Kraken and others. The SEC’s complaint claims that Coinbase has illegally facilitated the purchase and sale of crypto assets, generating billions of dollars since 2019.
As the lawsuit could severely limit Coinbase’s revenue streams, the question is why its stock is in the midst of a market rally. The volume of cryptocurrency trading has plummeted this year, putting downward pressure on Coinbase’s main source of income, transaction fees.
Two developments may have given investors cause for optimism: the substantial rise in Bitcoin’s spot price since the start of the year and the potential lucrative tie-up with the world’s largest asset manager BlackRock. BlackRock is fighting for approval of its Bitcoin ETF, and Coinbase could be key in this. Fidelity and Chicago Board Options Exchange have also named Coinbase in their Bitcoin Spot ETF applications. With these financial institutions managing tens or hundreds of billions of dollars of assets, the potential for Coinbase to benefit is huge.
