ARK Invest CEO and Chief Investment Officer Cathie Wood has revealed that her flagship fund, Ark Innovation (ARKK), is adding to its position in Coinbase (COIN) despite the Securities and Exchange Commission (SEC) lawsuit against Binance, one of Coinbase’s biggest competitors. According to disclosure statements, ARKK purchased almost 330,000 shares of COIN on June 6, 2023, worth about $17 million at the time. The Ark Fintech Innovation ETF and Ark Next Generation Internet ETF also added 35,700 shares (worth $1.8 million) and 53,900 shares (worth $2.8 million), respectively. Across all three funds, Ark’s average entry price is $272.75 to $282.93, with the firm’s total position currently valued at $1.77 billion.

Why ARK Invest Remains Bullish on Coinbase

Wood believes that SEC enforcement will lead Coinbase to become the only cryptocurrency exchange in the US, assuming that Coinbase will triumph in its legal battles with the SEC. Although both Binance and Coinbase are facing lawsuits by the SEC over the alleged trading and staking of unregistered securities, Wood sees a difference in the accusations being brought against the two exchanges. Binance may be facing more serious charges since Binance CEO Changpeng Zhao and three of the exchange’s affiliates violated the Commodity Exchange Act and regulations of the Commodity Futures Trading Commission. These allegations “have nothing to do with Coinbase,” according to Wood. Therefore, she believes that Coinbase will emerge victorious and with its biggest competitor out of the picture, it will be the only game in town when it comes to cryptocurrency exchanges in the US.

However, some analysts do not share Wood’s view, and the analyst consensus on the COIN stock is a Hold rating, with an average price target of $58.49, or roughly 12% to the upside from current levels. COIN is trading at $53.90 at the time of writing, and the relative strength index is almost perfectly neutral at a reading of 49.7, suggesting no decisive direction for COIN at this time.

When evaluating the future prospects of an equity, most analysts tend not to look at one factor in isolation. Basing an investment thesis on the sole premise that a company’s competitors may be doomed can lead analysts to ignore other, and perhaps even more important, factors. Coinbase is also facing a lawsuit from the SEC regarding the trading and staking of unregistered securities. This could eventually lead to the exchange being deemed to have participated in illegal activities.

Furthermore, rumors have started circulating that Coinbase invests in tokens listed on the platform before they become available to the public. If this was due to an orchestrated pump-and-dump scheme, it could constitute a financial crime of epic proportions. While Coinbase Ventures claims that it does not “coordinate with review and listings teams” and is “run and staffed separately from the main business,” it may point to one more thing for financial authorities to consider investigating. News of such an investigation would probably not bode well for the share price of COIN.

Wood remains bullish on Bitcoin, stating that it is a hedge against inflation. She also sees deflation as a substantial risk going forward, but despite this, she holds firm to her $1 million target for Bitcoin. Bitcoin experienced a golden cross back in February, with the 50-day exponential moving average (EMA) moving above the 200-day EMA. Volumes have been declining, along with the Chaikin money flow, suggesting the potential for sideways trading for the time being. Even in a deflationary environment, Bitcoin can still outperform due to it being “an antidote to counterparty risk in the traditional financial system,” according to Wood.

The next Bitcoin halving event is less than one year away, and investors are currently in the “accumulation” phase of the cycle.

Analysis

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