Cathie Wood’s Bullish Take on Coinbase Stock: Why Bitcoin Could Reach $1 Million

In a conversation with Bloomberg, Cathie Wood, CEO and chief investment officer of ARK Invest, recently explained why the ARK Innovation fund (ARKK) is increasing its stake in Coinbase (COIN) stock after the Securities and Exchange Commission (SEC) took action against Binance, a major rival of Coinbase.

On June 6, 2023, ARKK acquired approximately 330,000 shares of COIN, valued at approximately $17 million according to disclosure documents. Furthermore, the Ark Fintech Innovation ETF and Ark Next Generation Internet ETF each purchased 35,700 shares (valued at $1.8 million) and 53,900 shares (valued at $2.8 million) respectively.

Across the three funds, Ark’s average cost per position is between $272.75 and $282.93, with the firm’s total holdings amounting to $1.77 billion. At present, COIN is being traded at $53.90, meaning the fund has suffered a significant loss on this investment thus far.

In regards to why she remains optimistic, her logic is simple: the SEC’s enforcement will cause Coinbase to become the only cryptocurrency exchange option in the USA. Obviously, this is contingent upon Coinbase succeeding in its legal disputes with the SEC.

Wood elucidated that she discerns a contrast in the indictments being leveled against the two exchanges. Despite both being sued by the SEC for purportedly trading and staking of unregistered securities, Binance may be subject to more substantial accusations.

In March, Binance CEO Changpeng Zhao (commonly referred to as CZ) was the subject of a civil enforcement action brought against him by the U.S. regulator for derivatives. The action claims that CZ and three of the exchange’s affiliates had violated the Commodity Exchange Act and several regulations of the Commodity Futures Trading Commission.

Wood claimed that the allegations had “nothing to do with Coinbase,” leading her to conclude that Coinbase will survive and come out on top, without its major competitor.

It is difficult to determine if Wood’s decision to invest in COIN is justified. While some experts agree with her opinion, others do not. The majority of analysts rate the stock as a “Hold” with an average target price of $58.49, which is a 12% increase from the current price.

John Todaro and Atlantic Equities, among other notable analysts, have expressed a more optimistic outlook, forecasting a price of $70.

The relative strength index is hovering around neutrality at a reading of 49.7, indicating that there is no clear course of action for COIN at present.

It may be the case that COIN is the premier and possibly the only U.S.-based cryptocurrency exchange. However, this by itself may or may not result in an increase in the price of COIN.

When considering the potential of a stock, most analysts do not focus on only one element. Building an investment strategy on the premise that a company’s rivals may be in peril may cause analysts to miss other, possibly more significant, factors.

Could Coinbase also face criminal charges going forward?

It is important to reiterate that Coinbase is currently being sued by the SEC for their trading and staking of unregistered securities. This could potentially result in the exchange being considered to have taken part in unlawful activities.

It is even more worrying than SEC enforcement actions that Coinbase may have invested in projects before they were made available to the public, which it intended to list on the exchange.

Following Brian Armstrong’s conversation with The Wall Street Journal on June 10, speculation began that Coinbase had invested in tokens listed on its platform. In the interview, Armstrong did not give a clear response to a query regarding the issue.

It is widely known that almost every time a new token is added to Coinbase, the value plummets.

Should this have been the result of a planned pump-and-dump operation, it would be an extremely serious financial offense.

Is there any proof to back up such a serious accusation?

Yes and no, you could say.

Examining Coinbase Venture’s portfolio, it appears that up to 30 projects featured in the firm’s investment portfolio have also been listed on the exchange. Nevertheless, Coinbase Ventures asserts that it does not “collaborate with review and listings teams” and is “managed and staffed independently from the primary business.”

Whilst this does not necessarily prove that Coinbase manipulated its exchange for a pump-and-dump scheme, it could be something for financial authorities to look into. Needless to say, if there were to be an investigation, it would likely have a negative effect on the share price of COIN.

The SEC has requested an extension to respond to Coinbase’s request for clarification on cryptocurrency regulations.

Bitcoin to $1 million?

In her dialogue with Bloomberg, Wood reiterated her opinion that Bitcoin is a safeguard against inflation. However, she also pointed out that she believes deflation is a major risk in the future. Despite this, she is still optimistic about the Bitcoin value and stands by her goal of $1 million.

In February, Bitcoin saw a golden cross, with the 50-day exponential moving average (EMA) crossing over the 200-day EMA. Since then, trading volumes have decreased and the Chaikin money flow has decreased, indicating that the market could be in for a period of sideways trading.

Even if prices are falling, Bitcoin can still outperform other investments due to it being “a safeguard against counterparty risk in the traditional financial system,” as Wood has stated.

Given the fact that three of the four biggest bank failures in U.S. history have taken place in the last three months, her argument may be valid.

The upcoming Bitcoin halving event is less than a year away, and investors are currently in the “accumulation” stage, as depicted in the chart below.

Will Wood’s $1 million price prediction for the next cycle peak be fulfilled?