Coinbase’s Meteoric Rise Defies Logic As BlackRock Alliance Boosts Stock

Coinbase Global’s (COIN.O) stock has risen from the ashes of last year’s cryptocurrency market conflagration. But the digital exchange’s ascent defies both gravity and logic. Not only does Coinbase’s value hang on factors that are almost impossible to predict, but even in the best case, it’s a mystery why the market would think the firm run by former software engineer Brian Armstrong is worth anything like its current $25 billion.

Shares in Coinbase got a major boost after money management behemoth BlackRock (BLK.N) applied to launch a bitcoin-backed exchange-traded fund this month with Coinbase as its custodian. For an industry still in its infancy, alliances with old-school Wall Street names are a big win. Extra exuberance came from a legal win by Ripple, a creator of digital tokens that, like Coinbase, had been accused by the Securities and Exchange Commission of selling unregistered securities. Coinbase shares are up nearly 54% in July, handily beating the tech-heavy Nasdaq Composite Index (.IXIC), which rose 4%.

The SEC’s moves against Coinbase and Binance do not address whether cryptocurrencies are securities or commodities, a debate that has caused confusion for regulators and meant that for years regulation of the digital token business has fallen between the two stools of the SEC and the Commodity Futures Trading Commission (CFTC).

“Federal agencies always seek to expand their scope of jurisdiction, so obviously the SEC would like to call these things securities, and going after the exchanges is one way to stake out their claim. You don’t have to call it a security to do that,” said Charles Elson, the chair in corporate governance at the University of Delaware. 

The SEC’s main role is to look for financial fraud in investing, and that mandate covers securities. When the SEC was established in 1932, it was clear what was a stock and what was a bond, says Elson. Today, that definition has broadened quite a bit,” said Elson.

“The agency that is charged with protecting the investing public, views these cryptocurrencies as monetary investments, and this expands their jurisdiction to cover what they think is problematic. Anytime they see an investment they think looks and smells like a security they’re going to be interested.” said Charles Elson, the chair in corporate governance at the University of Delaware. 

Coinbase’s (NASDAQ: COIN) overseas futures exchange recorded nearly $2 billion in volumes for July. The company, set to announce its second-quarter (Q2) earnings this Thursday, initiated its Bermuda-based futures exchange in May.

This move was part of what the firm termed a “global expansion strategy,” The Block reported. The exchange was launched with two contracts, namely Bitcoin (CRYPTO: BTC) and Ether (CRYPTO: ETH) perpetual futures.

Throughout July, Coinbase International witnessed $1.963 billion in volumes traded across these two contracts, with the activity gradually decreasing as the month progressed. Coinbase’s new market constitutes a minor segment of the broader crypto futures market.

In July, Bitcoin futures volumes exceeded $550 billion, as per The Block’s data. However, it’s still the initial phase for this new marketplace, and it might require time to accumulate liquidity and draw clients from rivals.

For instance, CME Group registered $64.3 million in volumes for its ether futures contract during its first trading month in 2021, the data states. In contrast, monthly volumes for Coinbase International’s Ether contract reached $770 million in July.

Produced in association with Benzinga

Edited by Eunice Anyango Oyule and Judy J. Rotich