Coinbase Global Inc. shares have been on a tear over the past two weeks, but an analyst warns that enthusiasm for the stock “may prove short-lived.”
Berenberg Capital Markets analyst Mark Palmer attributed the more than 30% rally in Coinbase’s stock
COIN,
since June 15 in part to optimism about BlockRock’s application with the Securities and Exchange Commission for a spot bitcoin exchange-traded fund.
See also: Fidelity files new spot bitcoin ETF application, following BlackRock, Invesco
“We believe the surge in COIN’s share price was driven not only by the positive change in sentiment toward bitcoin and cryptocurrencies resulting from the prospect of the world’s largest asset manager playing a prominent role in the space, but also by the fact that the company was designated as the provider of custody for the fund,” Palmer wrote.
That said, he said he remains cautious on the stock, which he rated at hold with a $39 target price. The shares were ahead 1.4% in Thursday afternoon trading and changing hands just south of $72.
“Investors looking at COIN as a play on increasing engagement by institutions with the digital-asset ecosystem should first consumer the risks the company is facing that could give rise to negative headlines and trigger a reversal of the stock’s recent gains,” Palmer continued.
He noted that he is worried about a lawsuit from the Securities and Exchange Commission that charges the company with operating an unregistered national securities exchange as well as pushback from 10 states related to the company’s staking program. The states have give Coinbase 28 days to respond to their order.
See more: Analyst says penalties from Coinbase SEC suit could top $6 billion
While a custody role with the BlackRock ETF might offer some upside, the downside from the possible loss of staking revenue would be significantly larger, in his view.
“We think it is highly unlikely that COIN will be able to convince the group of 10 state regulators that its staking rewards program does not involve the issue of unregistered securities,” Palmer wrote. “With the deadline for COIN to provide its response to the show-cause order set for July 4, it is quite possible that the company on a date shortly thereafter would be ordered to cease providing staking rewards to customers in the 10 states in the task force.”
