Blackrock files for Bitcoin ETF
Since BlackRock, a financial giant, filed for a Bitcoin exchange-traded fund (ETF) with Coinbase Global, the shares of the cryptocurrency broker have experienced a remarkable surge. However, amidst the excitement, an analyst suggests that this upward trend may not be sustainable.
Ever since the filing was made by BlackRock on June 15, the stock of Coinbase (COIN) has rallied more than 30%. Moreover, in the premarket trading session on Thursday, the shares of the company rose an additional 2.5%. This filing by BlackRock carries immense significance, not only due to the involvement of one of the largest players in finance but also because it introduces a new market surveillance mechanism that crypto enthusiasts hope will gain regulatory approval. While Bitcoin futures ETFs have been approved in the past, there has been no green light yet for a fund that directly holds Bitcoin itself from the Securities and Exchange Commission (SEC).
Although Coinbase and Bitcoin have both witnessed an upward trajectory amid this wave of optimism for digital assets, Mark Palmer, an analyst from Berenberg, expressed caution in a note on Wednesday, suggesting that the enthusiasm surrounding Coinbase might be short-lived. Palmer has assigned a "Hold" rating to Coinbase with a price target of $39. On Wednesday, the shares closed above $70.
Palmer believes that investors who consider Coinbase as a potential investment in the increasing engagement of institutional players with the digital asset ecosystem should carefully evaluate the risks the company faces, as negative developments in the near future could potentially reverse the recent gains in the stock. The primary concern for Palmer stems from a lawsuit filed by the SEC against Coinbase, which poses a threat to the core business of the broker.
Berenberg, in its analysis, indicates that cease-and-desist orders regarding Coinbase's interest-bearing "staking" services, which have been a significant revenue generator for the broker, may be on the horizon. These services are currently under scrutiny by both the SEC and state regulatory bodies.
Coinbase has chosen not to comment on its financials, citing a quiet period leading up to its next quarterly earnings release. Palmer highlights that if Coinbase is compelled to halt its staking service, the potential loss of revenue would outweigh any benefits derived from its role as a custodian for the potential BlackRock ETF, which is still pending regulatory approval.
Palmer stresses the importance of conducting a thorough evaluation of the financial impact of Coinbase's custodian role, suggesting that it might not have as substantial an effect as some investors anticipate.
Given the concerns expressed by Palmer and the ongoing surge in Coinbase stock, prudent investors may find it worthwhile to exercise caution and carefully consider the potential risks before joining the current fervor surrounding the company.