Coinbase Stock Is Holding Up Despite Regulatory Crackdowns On Crypto

On Tuesday, shares of Coinbase Global COIN +0.80% declined amid a decline across digital assets, but despite the prevailing regulatory pressure on the crypto industry, the stock has shown some resilience so far.

‍

On Tuesday, Coinbase stock (ticker: COIN) gained as much as 2%, initially holding up in the face of a broader downturn, despite the fact that the stock price tends to move in step with the price of digital assets. In afternoon trading, however, the shares of the company fell 0.6% while Bitcoin also shed 0.6%, compared to the S&P 500SPX –0.16%, which fell 0.5%.

‍

Earlier this week, the Commodity Futures Trading Commission filed a suit against Binance, causing a wave of fear throughout the crypto ecosystem. In the commission's complaint, the world's largest cryptocurrency exchange has been accused of violating regulations that require derivatives and futures to be traded on regulated platforms. As a result of the suit, Binance expressed dissatisfaction with the outcome and said that it would continue to work with regulators throughout the world in order to improve the situation.

‍

The resilience and outperformance of Coinbase stock, even as it has been faced with these pressures, is noteworthy. Despite the fact that the shares have fallen sharply since last week after the company announced looming SEC charges, the shares are still up more than 75% so far this year. According to Dow Jones Market Data, Bitcoin shares are trailing Coinbase shares in 2023, with Bitcoin gains of 64%, while the S&P 500 shares have only gained 3%.

‍

In spite of this, upward pressure on a competing company is not the only factor responsible for any gains in the Coinbase stock.

‍

As far as crypto exchanges are concerned, Coinbase and Binance offer some straightforward features for buying and selling digital assets, but the former focuses primarily on U.S. retail investors. In addition to its offshore location, Binance is the largest cryptocurrency exchange in the world, and is also home to the world's most liquid Bitcoin futures market, the largest market in all of crypto trading.

‍

There is no guarantee that Coinbase will be benefitted by CFTC scrutiny of Binance. This is because it illustrates the extent to which U.S. regulators are cracking down on crypto companies in general. Coinbase was only recently informed that it would be charged by the Securities and Exchange Commission. However, it is not a positive sign for Coinbase that these charges have spread to other companies.

‍

Binance-which specializes in derivatives-again bodes well for Coinbase, which has been working to diversify its business away from crypto trading operations into more subscription- and service-based revenue sources. This case against Binance also bodes ill for Coinbase. In addition to diversifying its business, Coinbase has also dabbled in derivatives as part of this diversification.

‍

Even though the Federal Reserve is expected to be more accommodative of monetary policy in the coming years, investors remain optimistic about crypto. Bitcoin and Coinbase stocks both have rallied, indicating that investors are still optimistic about crypto. In the near future, traders are expecting that the era of high interest rates will soon pass. If so, that could mark the return to the looser financial conditions that were responsible for Bitcoin's last bull run in 2020.

‍

The regulatory headwinds that are currently hindering Coinbase stock appear to be falling by the wayside for the time being, at least for the time being.