The odds that fund companies will be able to offer exchange-traded funds tracking the spot price of
Bitcoin
improved on Tuesday, boosting crypto-related stocks. But
Mizuho
analysts anticipate increased challenges for Coinbase Global.
A federal court ruled in favor of Grayscale Investments on Tuesday in a case against the Securities and Exchange Commission alleging that the regulator acted arbitrarily when it denied the crypto asset manager’s attempts to convert its Grayscale Bitcoin Trust (ticker: GBTC) into an ETF.
The SEC has already approved ETFs that track Bitcoin futures, but it has opposed spot Bitcoin ETFs. The launch of such funds—other companies have applied to offer them as well—would make Bitcoin more standardized and accessible as a financial product in the U.S.
Coinbase
(ticker: COIN) surged after the news, with shares up 15% at $84.85 each on Tuesday afternoon. But for Coinbase, a spot-based Bitcoin ETF wouldn’t be much of a benefit, Mizuho’s Dan Dolev and his team said in a research note after the ruling. He has an Underperform rating on the stock with a $27 target for price.
“We believe a Bitcoin ETF could increase competition and put pricing pressure on retail take rates,” he wrote.
Retail take rates refer to the fees Coinbase receives on transactions. According to Dolev, it charged consumers 1.68% in the first quarter, compared with 1.54% in the prior quarter. His concern is that Bitcoin ETFs would offer investors a new way to invest in cryptocurrencies, putting pressure on the exchange’s fees.
Coinbase doesn’t detail its take rates. While the company didn’t respond to a question on potential decline in take rates, Coinbase said in an emailed statement to Barron’s and other media outlets that the Greyscale decision is “an important step toward the clarity the industry needs.”
The stock’s outsize move on Tuesday suggests that Coinbase’s investors may not be considering the risk.
Write to Karishma Vanjani at [email protected].
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