{"id":87599,"date":"2023-11-22T15:07:01","date_gmt":"2023-11-22T20:07:01","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/2-of-cryptos-biggest-names-are-felons-what-it-means-for-coinbase\/"},"modified":"2023-11-22T15:07:03","modified_gmt":"2023-11-22T20:07:03","slug":"2-of-cryptos-biggest-names-are-felons-what-it-means-for-coinbase","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=87599","title":{"rendered":"2 of Crypto\u2019s Biggest Names Are Felons. What It Means for Coinbase."},"content":{"rendered":"
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Thirteen months ago, Sam Bankman-Fried and Changpeng Zhao sat atop the world of cryptocurrency. They were rivals running two of the biggest and fastest-growing digital asset exchanges\u2014FTX and Binance, respectively\u2014and pulling away from rivals such as
\n Coinbase Global.<\/span>\n <\/p>\n

Today, both Bankman-Fried and Zhao are felons. FTX filed for bankruptcy in November 2022 in a market-melting collapse that led to Bankman-Fried being found guilty of criminal fraud this month, putting him at risk of decades in prison. On Tuesday, Zhao pleaded guilty to federal anti-money-laundering violations, stepping down from Binance, which also pleaded guilty and agreed to pay $4.3 billion in fines as well as accept five years of third-party monitoring.<\/p>\n

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\n Coinbase
\n (ticker: COIN) is still standing, with its stock up 200% this year and a market value above $25 billion. Co-founder and CEO Brian Armstrong has seen two of his greatest competitive threats hobbled. He\u2019d be forgiven for gloating.<\/p>\n

\u201cWe couldn\u2019t always move as quickly as others. It\u2019s more difficult and expensive to take a compliant approach,\u201d Armstrong said in a post on social media platform X<\/a> on Tuesday. \u201c[The Binance] news reinforces that doing it the hard way was the right decision.\u201d<\/p>\n

Coinbase has long been viewed as the blue-chip, safe-ish way to play crypto\u2014and it\u2019s true that the company has seen slower growth as a result. Ultimately, the Binance bombshell may give Coinbase a long-term boost, removing pressure from a larger rival whose freewheeling and dominant days are likely over under the thumb of third-party monitoring.<\/p>\n

Binance has been losing market share for months\u2014recording the biggest drop in market share for derivatives, its bread and butter, among any major exchange last month, according to analytics group CCData\u2014and that could continue.<\/p>\n

\u201cThe settlement agreement between U.S. authorities and Binance marks the end of an era,\u201d said Yiannis Giokas, senior director of digital assets at Moody\u2019s Analytics. \u201cWith digital currencies becoming more mainstream and institutional players entering the space, regulations and enforcement will become stricter to ensure compliance and consumer protection.\u201d<\/p>\n

Indeed, the ability of U.S. law enforcement to nab Binance\u2014which has long been an amorphous, offshore corporate entity\u2014reinforces that the future of crypto is regulated. And while Coinbase is a winner, it isn\u2019t even out of the woods itself.\u00a0<\/p>\n

The Securities and Exchange Commission sued Coinbase earlier this year, alleging that it operates as an unregistered securities exchange and deeming its core business fundamentally illegal. Coinbase has said that it will fight the SEC charges in court and has maintained that it doesn\u2019t offer unregistered securities. The crux of the legal case lies in the existential question of whether or not\u2014or which\u2014digital assets are securities, and the suit between Coinbase and the SEC is existential in nature.<\/p>\n

Nevertheless, Coinbase stock has been on a tear, up triple-digits this year in tandem with the price of
\n Bitcoin
\n and other tokens. The shares gained 2.5% on Wednesday, a welcome boost, but not atypical for the volatile stock and likely reflecting that the consensus view is one of Coinbase as a survivor that will manage regulatory risks.<\/p>\n

The SEC also targeted another rival, Kraken, this week, with similar charges of operating an unregistered securities exchange, which could also be helping Coinbase shares.<\/p>\n

But that doesn\u2019t mean the stock is a buy. There remains a compelling bear case, including regulatory threats and competition from elsewhere. The stock also looks overbought, with an average rating among analysts surveyed by FactSet of Hold but a consensus price target almost 20% higher than current levels.\u00a0<\/p>\n

The key issue for Coinbase is the health of the overall crypto market\u2014and that\u2019s one way Binance might help, with the settlement this week removing some tail risk that the world\u2019s largest crypto exchange might meet a more chaotic end.<\/p>\n

\u201cThis settlement puts to rest one of the long-lingering questions for crypto in 2023. Ultimately, the sentiment among traders is that the industry is finally turning a corner, looking past the chaos of 2022\/23 and believing that growth is on the way,\u201d said Michael Safai, managing partner at crypto hedge fund Dexterity Capital.<\/p>\n

The next major catalyst is the prospect of a spot Bitcoin exchange-traded fund (ETF) being approved by regulators, which would be expected to usher in a fresh wave of investor interest\u2014and looks increasingly likely. Hopes of ETF approval have driven Bitcoin and Coinbase\u2019s rally in recent months, with shares in the exchange more than doubling since it was announced that
\n BlackRock
\n (BLK) had filed for one such fund with Coinbase as custodian.<\/p>\n

\u201cThis settlement and a potential ETF approval will help set the stage for a nice run,\u201d said Safai.<\/p>\n

Write to Jack Denton at jack.denton@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n