Don't chase the Coinbase rally as regulatory risks still linger, analysts warn

Published Tue, Jul 25 20232:00 PM EDT

Investors shouldn't chase the Coinbase rally that was sparked by a pop in crypto asset XRP due to a partial legal win in federal court, analysts warned. Coinbase shares are up 17% since a judge in the Southern District of New York ruled that XRP was not a security " on its face ." The judge also ruled that Ripple violated securities laws when selling XRP to institutions but not to retail investors. However, some analysts noted investors should stay cautious around Coinbase for a little while longer. Despite the ways Coinbase and the crypto industry can benefit from the ruling, the dark cloud of regulatory uncertainty hasn't gone away yet. COIN mountain 2023-07-13 COIN pops since July 13 "Despite positive elements of Ripple's surprise ruling and subsequent momentum for crypto stocks, we don't believe investors should be aggressive on recent momentum," Citi analyst Peter Christiansen said in a note Monday. He added that although the ruling is positive, it's "not a Panacea" for Coinbase. Meanwhile, Bank of America's Jason Kupferberg said the rally "looks overdone." "On the surface, the legal ruling in the Ripple case appears positive for COIN. With that said, the judge in the XRP case did not comment broadly on whether secondary market sales on exchanges constitute an investment contract," Kupferberg said in a Tuesday note. Plus, the SEC is likely to appeal the ruling and the securities regulator's lawsuit against Coinbase, which it brought in June. Both firms lifted their price targets on the shares, however. Citi raised its forecast to $105 from $65, but maintained its neutral rating. Bank of America increased its outlook to $58 from $49 and reiterated its underperform rating. The stock closed at $98.85 Tuesday. Citi said it expects to see volumes and net revenue at a two- to three-year low in Coinbase's second-quarter earnings. The bank noted that, although time spent on the app has remained steady, both unique visitors and downloads are at multiyear lows. "Bitcoin's upcoming halving, the potential for new spot Bitcoin ETFs (custody opportunity for Coinbase), as well as Ethereum's Cancun upgrade are possibly upside catalysts, though we expect regulatory overhang to remain uncertain over the medium term," Christiansen said. Kupferberg also said Bank of America's updated price target is "a result of peer comp multiple expansion and the prospect for numerous spot Bitcoin ETF applications from the likes of Blackrock and others to be approved." — CNBC's Michael Bloom contributed reporting.