Shares of the largest US crypto exchange hit their highest since May 2022 after US authorities fined market leader Binance a record $4.3 billion.. RBC-Crypto understood its prospects in the market Brian Armstrong, CEO of the Coinbase exchange
After the US Department of Justice fined Binance a record $4.3 billion and forced Changpeng Zhao to resign as head of the company, its competitor Coinbase is trying to regain its title as the world's largest crypto exchange.
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The Coinbase (COIN) share price on the NASDAQ exchange has reached a new high since the beginning of May 2022. The price of COIN on November 28 is $127.5, according to TradingView. Coinbase stock is up 176% over the past year since November 28, 2022, but is still down 67% from its November 9, 2021 high of $368.9.
What is growth related to?
Founded in 2012, Coinbase has long positioned itself as a compliant cryptocurrency company and does not risk listing crypto assets that regulators consider unregistered securities.
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Coinbase was one of the first crypto companies to be listed on NASDAQ and the first crypto exchange to be listed in the US. In this regard, it attracts the attention of investors, including due to the lack of competitors with similar businesses, explains cryptocurrency market analyst Viktor Pershikov. Besides Coinbase, the only crypto-oriented companies can be called public miners and those that hold bitcoins on their balance sheets. The largest of them are Elon Musk's Tesla, MicroStrategy, Riot Platforms and Marathon Digital.
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The growth of Coinbase shares in recent days is associated with several factors, Pershikov clarifies.. Firstly, from the first days of listing, large investment funds have been investing in COIN, many of which are now increasing the volume of purchases of exchange shares. Secondly, the positive correlation of their price with the Bitcoin exchange rate leads to the fact that, against the background of the growth of the crypto market benchmark, crypto-oriented stocks, including COIN, are also growing. Additionally, the fact that Coinbase's custodial solution is being chosen by companies awaiting approval for spot Bitcoin ETFs is a positive fundamental factor.
In 2023, several large financial institutions have applied to launch their own exchange traded funds (ETFs) for Bitcoin, and the first of them may be approved in the first quarter of 2024. The launch of such ETFs is considered in the crypto community to be a catalyst for a new bull cycle in the market.
Custody is an important part of the process of bringing Bitcoin spot exchange-traded funds (ETFs) to the US market.. Custodians hold assets on behalf of another entity, and in this case that means holding billions of dollars worth of Bitcoin protected from loss, theft or hacker attack.. Coinbase is currently the custodian for nine of the 12 Bitcoin ETFs awaiting US approval, including BlackRock's upcoming ETF.
“The market situation, of course, affects the price of the company’s shares, but only indirectly,” says Nikita Zuborev, senior analyst at Bestchange.ru. “The higher the cryptocurrency rate, the more clients and transactions it has, which means the conditions are favorable for the exchange.”
On the other hand, shares of crypto companies can be considered by individual investors as an absolutely legal and simple way to invest in the cryptosphere, since they are listed on traditional exchanges and meet all the requirements of financial regulators, adds Zuborev. Therefore, with growing interest in cryptocurrencies, there is an intensification of the positive trend for shares of crypto companies. Although this phenomenon is not enough to form a trend, it can definitely enhance other positive factors, the analyst believes.
Competitor's problems
“We have seen a moment where the action against Binance has allowed us to turn the page and hopefully close this chapter in the history of cryptocurrencies,” Coinbase CEO Brian Armstrong said in an interview with CNBC, commenting on Binance’s pre-trial settlement with the US authorities and Zhao’s forced resignation.
In 2017, Zhao, who had by then worked as a programmer at the Tokyo Stock Exchange and Bloomberg Trading, launched Binance through an initial coin offering (ICO) and quickly regained Coinbase's relatively short-lived dominant position in the crypto market.. At its peak, Binance accounted for 60% of the world's cryptocurrency trading volume and still has a market share of over 40%.
The exchange does not have a single official headquarters and board of directors in the usual form, and legal entities associated with it are scattered across different jurisdictions. According to American authorities, all this gave her the opportunity to bypass regulatory restrictions, and sometimes the law.. According to the US Department of Justice indictment, it was this approach that allowed Zhao to make Binance a leader in the market for trading cryptocurrencies and more complex financial instruments related to cryptoassets.
Armstrong recently posted on X (formerly Twitter) that going public in the US meant Coinbase “couldn't always act as quickly as others.”. According to him, an approach to work based on compliance with all requirements is more complex and more expensive.. “You cannot launch [on the exchange] a product that customers want if it is illegal,” he added.
Long-term consequences
The problems of its main competitor certainly affected the success of Coinbase, says Zuborev, discussing additional factors for the growth of the exchange’s shares. However, it is worth noting that the effect of such news will be short-term, since the problems of one exchange are quite easily transferred to another.
While the trend of US regulators continues to exert strong pressure in this area, and despite the positive effect of the news in the moment, the long-term consequences for Coinbase and other large crypto exchanges may be the opposite, the analyst admits.
In 2023, regulatory actions in the US and other countries caused Binance a number of difficulties. The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance in March, followed by the US Securities and Exchange Commission (SEC) in June.. Amid ongoing litigation, the Zhao Exchange's market share has declined noticeably.
However, Coinbase was not immune from claims from regulators.. In June, the day after the lawsuits were filed against Zhao and Binance, the SEC sued Armstrong's exchange, and the proceedings are still ongoing.
“Recent events around Binance, as well as Coinbase’s own problems in the form of a lawsuit from the SEC, are definitely not positive,” says Pershikov.. “The criminal prosecution of Binance and its outcome are viewed as positive by many analysts, including Coinbase, but I do not consider the events as such.”
The precedent that was created regarding the Binance case can be further applied by the US court for other crypto exchanges in the event of claims and litigation, Pershikov is sure. Coinbase, in his opinion, is also unlikely to be significantly protected from this, even if it conducts its activities in strict accordance with all legal requirements, especially within the framework of the requirements for the AML (anti-money laundering) policy.
At the same time, Coinbase is in a much more stable position than Binance, Pershikov clarifies.. In the event of a positive outcome as a result of the proceedings between the exchange and the SEC, COIN shares may receive additional fundamental positive and in the medium term, against the backdrop of the listed fundamental factors, reach $200 in the coming months, the expert believes.
The opinions of experts may not coincide with the position of the editors. RBC-Crypto does not provide investment advice, the material is published for informational purposes only. Cryptocurrency is a volatile asset that can lead to financial losses.