Background

The U.S. Court of Appeals for the D.C. Circuit recently ruled in favor of Grayscale, a major crypto investment firm, against the Securities and Exchange Commission (SEC). The court found that the SEC was wrong to deny Grayscale permission to convert its popular bitcoin trust, GBTC, into an exchange-traded fund (ETF). This ruling is seen as a positive development for the eventual approval of a U.S. bitcoin ETF, which could drive greater adoption of bitcoin.

Impact on Coinbase

While the court victory benefits bitcoin, it raises concerns for Coinbase, the largest U.S. crypto exchange. Coinbase is also the first crypto company to go public and one of the oldest service providers in the industry. The increased adoption of bitcoin resulting from a successful bitcoin ETF launch could lead to greater competition among service providers like Coinbase. Some analysts believe that if investors prefer trading bitcoin through ETFs rather than directly on Coinbase, the exchange’s trading activity could decline.

Market Reaction

Following the news of Grayscale’s court victory, Coinbase shares initially rallied by nearly 15%. However, the stock experienced a 1% decline in trading the next day. Bitcoin, on the other hand, rose by 7% on the day of the ruling.

Mizuho’s Perspective

Analysts at Mizuho noted that a bitcoin ETF launch would further commoditize bitcoin trading in the U.S. and increase competition, potentially putting pricing pressure on Coinbase’s retail take rates. They also highlighted that Coinbase’s reliance on bitcoin revenue has been increasing, which makes the SEC lawsuit and other regulatory actions a significant risk factor for the company.

Analyst Insights

Some analysts caution against making direct connections between Grayscale’s court victory and the ongoing legal battle between Coinbase and the SEC. They believe that any potential involvement of Coinbase in future ETFs could serve as a basis for the SEC to reject those applications. Investors should consider the revenue at risk due to the SEC lawsuit and other regulatory actions when assessing the potential benefits for Coinbase.

Source: ‘s Michael Bloom contributed reporting.