Coinbase Global Inc. shares roared more than 24% higher Thursday in the wake of a judge’s ruling on a case involving cryptocurrency tokens, fueling debate on Wall Street over what the decision means for Coinbase’s own regulatory headaches.
The cryptocurrency exchange is locked in a battle with the Securities and Exchange Commission, which has sued the company and charged that it has been running a unregistered national securities exchange. The agency has taken issue with various tokens sold by Coinbase
which the SEC views as securities.
So when a federal judge handed a partial victory Thursday to Ripple Labs’ crypto token, saying that it wasn’t a security when sold to members of the public on crypto exchanges, investors in Coinbase’s stock cheered.
“With clarity from Ripple’s case, there is increasing probability that resolution of Coinbase’s case could come earlier than expected, in our view,” Oppenheimer analyst Owen Lau wrote in a note to clients following the ruling, while sticking with his perform rating on the stock.
Additionally, he tuned in to a pre-motion conference between Coinbase and the SEC regarding their own case, and Lau thought “the judge asked good questions and showed a little skepticism toward the complaint,” another factor that could have helped fuel the rally in Coinbase shares.
But Berenberg Capital Markets analyst Mark Palmer was more skeptical about Coinbase’s ability to prevail, saying that Thursday’s stock surge was “not warranted,” especially in light of one footnote in the Ripple ruling.
Coinbase’s strong stock move likely “was driven in large part by investors who interpreted Judge Torres’ ruling as representing a rejection of the SEC’s argument in the lawsuit it filed against COIN on June 6 that many of the tokens bought and sold in secondary-market transactions on the company’s exchange are unregistered securities,” Palmer said in a report, but “a close reading of the ruling shows that the judge specifically did not reject that argument,” in his view.
He was struck by a footnote in the decision that discussed how the ruling didn’t address secondary-market sales of the token in question.
“The upshot is that [the judge’s] ruling pertained solely to the primary market transactions through which Ripple sold XRP, while COIN is in the business of facilitating secondary-market transactions on its exchange,” Palmer said, while maintaining a sell rating on Coinbase shares.
Benjamin Budish of Barclays, who had turned bearish on Coinbase’s stock just before the ruling, offered a mixed take on the judgment.
“Our read of today’s ruling is that marketing and context matter — in other words, the way the token was sold to investors impacts whether or not is a security,” Budish wrote. “Nevertheless, we view the ruling as incrementally positive for Coinbase, given it sets additional legal precedence that in some cases a token may not be a security.”
He added that “it may be possible the judge in Coinbase’s lawsuit could view the secondary-market trading of tokens to not be securities transactions based on this precedence, as there is no investment in a common enterprise.”
Factoring in Thursday’s rally, shares of Coinbase are up just over 200% so far this year, while the S&P 500
has gained 17%.