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Investors Shouldn't Chase Coinbase Rally Sparked by XRP Legal Win, Analysts Warn
Proceed with Caution
Analysts are cautioning investors not to chase the recent Coinbase rally that was sparked by a partial legal win for the crypto asset XRP. While Coinbase shares have soared 17% since the Southern District of New York ruled that XRP was not a security, experts believe it's too early to be aggressive. Despite the positive aspects of the ruling, regulatory uncertainty still looms over Coinbase and the crypto industry. This cautionary note is echoed by Citi analyst Peter Christiansen and Bank of America's Jason Kupferberg.
Legal Ruling Not a Panacea for Coinbase
Citi analyst Peter Christiansen stated that despite the favorable ruling for Ripple, investors should not aggressively chase recent momentum. The legal victory is positive, but it is not a cure-all for Coinbase's challenges. Bank of America's Jason Kupferberg added that the rally may be overdone, as the judge did not broadly address whether secondary market sales on exchanges equate to an investment contract. Furthermore, the Securities and Exchange Commission (SEC) is likely to appeal the ruling and continue its lawsuit against Coinbase.
Price Targets Revised
While both Citi and Bank of America lifted their price targets on Coinbase shares, they maintained a cautious stance. Citi increased its forecast to $105 from $65 but maintained its neutral rating. Bank of America raised its outlook to $58 from $49 and reiterated its underperform rating. The stock closed at $98.85 on Tuesday. Despite the revised price targets, Citi expects low volumes and net revenue in Coinbase's second-quarter earnings, noting a decrease in unique visitors and downloads.
Future Catalysts and Regulatory Overhang
Citi analyst Peter Christiansen pointed out that potential upside catalysts include Bitcoin's upcoming halving, the possibility of new spot Bitcoin ETFs, and Ethereum's Cancun upgrade. However, regulatory uncertainty is expected to remain over the medium term. Bank of America's Jason Kupferberg also mentioned that the increased price target is a result of multiple expansion among peers and the potential approval of spot Bitcoin ETF applications from companies like Blackrock.
Conclusion: Impact on New Business
Proceed with Caution
Investors looking to enter the crypto industry and start a new business should take note of the cautionary advice provided by analysts in light of the recent Coinbase rally sparked by the XRP legal win. While the partial legal victory for XRP has boosted Coinbase shares, experts emphasize the need for caution due to ongoing regulatory uncertainty.
The ruling may have provided some relief for Coinbase, but it does not guarantee smooth sailing for the company or the broader crypto industry. The judge's decision did not address key questions regarding secondary market sales and investment contracts. Additionally, the Securities and Exchange Commission (SEC) is likely to appeal the ruling and continue its lawsuit against Coinbase. This regulatory overhang creates an environment of uncertainty that new businesses in the crypto space need to consider.
Price Targets and Cautious Outlook
Although some analysts have revised their price targets for Coinbase shares upwards, they maintain a cautious stance overall. The increased price targets are primarily driven by multiple expansion among industry peers and the potential approval of spot Bitcoin ETF applications. However, low volumes and net revenue in Coinbase's second-quarter earnings, coupled with a decrease in user activity, indicate potential challenges for new businesses operating in the crypto industry.
Future Catalysts and Medium-Term View
There are potential upside catalysts on the horizon, such as the Bitcoin halving, new Bitcoin ETFs, and Ethereum's Cancun upgrade. However, regulatory uncertainty is expected to persist in the medium term, which can impact the growth and stability of new businesses in the crypto space. It is crucial for entrepreneurs to carefully assess the regulatory landscape and account for potential hurdles when planning and executing their business strategies.
In conclusion, while the Coinbase rally sparked by the XRP legal win may have attracted attention, investors looking to start a new business in the crypto industry should exercise caution. The regulatory uncertainty and challenges surrounding Coinbase and the broader crypto market highlight the importance of conducting thorough research and adopting a measured approach to navigate this evolving industry.
Article First Published at: https://www.cnbc.com/2023/07/25/dont-chase-the-coinbase-rally-as-regulatory-risks-still-linger-analysts-warn.html