JPMorgan analyzes all the winners and losers in asset management industry from bitcoin ETF approval

Published Thu, Jan 11 202411:29 AM EST

The approval of bitcoin ETFs reverberated across the landscape of stocks tied to crypto, leading JPMorgan to lay out which names can emerge as winner and losers. A rule change from the Securities and Exchange Commission released Wednesday night allow for bitcoin-focused exchange-traded funds, a move many see as a catalyst for regular investors to trade the digital currency. More than 10 firms are now in the process of launching bitcoin ETFs. Though the updated policy makes it easier to hold the currency itself, some finance stocks have already allowed investors to have exposure to trends in the space. Those names include companies that offer platforms for trading the often volatile currencies or issue funds. JPMorgan looked at how some companies in the asset management sector could be impacted by the rule change. Here's what analyst Kenneth Worthington found: Trading Coinbase is the primary brokerage and exchange for bitcoin ETFs, but Worthington said the rule change could be a double-edged sword. "We see the impact of a Bitcoin ETF as having both positive and risky elements for Coinbase," he said. "But given the appreciation of Coinbase's stock price, we see the risks as more relevant to shareholders." Coinbase has been hired as the custodian for eight of 11 bitcoin ETFs approved by the SEC. It can also get a boost from fees tied to surveillance sharing agreements, Worthington noted. But he said there's the potential for a "lose/lose" situation because a bitcoin ETF could end up being a competitor to Coinbase. That could result in customers moving to equity brokers and hurt volume. Successful crypto funds can also worsen Coinbase's trading commissions and spreads, he said, with particular concern in simple retail trades. Robinhood has pitched itself as a lower-cost alternative to Coinbase, the analyst said. He said investors may use Robinhood's equity brokerage for cheaper exposure to bitcoin and other currency forms should more ETFs gain regulatory approval. Elsewhere, Worthington said alternative coin trading will remain in its spot cryptocurrency division. Both stocks have pulled back in 2024 after big gains in the prior year. Coinbase has slipped about 13% so far in the new year after soaring by more than 390% in 2023. Robinhood has shed nearly 5% in 2024 following a 56.6% jump in the previous year. Analysts are mostly downbeat on the pair. Coinbase and Robinhood only have buy ratings from 30% and 25%, respectively, of analysts covering them, FactSet data shows. The average price target on Coinbase implies downside of 16%. For Robinhood, it points to an 8% gain. COIN HOOD 1Y mountain Robinhood and Coinbase over the last year Asset managers-turned-issuers There's been a "race to the bottom" among ETF issuers when it comes to fees as they fight for investor dollars, Worthington said. Blackrock is offering a waiver for the iShares Bitcoin Trust to have a 0.12% fee during the first 12 months or before $5 billion in assets is hit. After, it will move to a steady cost of 0.25%. Worthington said the firm's June application reignited interest and brought legitimacy as it vied for approval. Blackrock has lost nearly 2% so far in 2024 after underperforming the broader market last year. Despite that, Wall Street is optimistic: Nearly 80% of analysts covering the stock have a buy rating, and the average price target implies upside of more than 11%, per FactSet. Meanwhile, Invesco has a 0.39% fee special with a waiver, lower than the 0.59% amount previously shared. The firm is partnering with Galaxy on the Invesco Galaxy Bitcoin ETF. Invesco has climbed about 1.5% since the year began, reversing course after bucking 2023's rally with a loss of nearly 1%. The typical analyst sees more trouble ahead, with a hold rating and price target showing a loss of almost 2%, according to LSEG. Despite being a lesser-known name, Worthington said Franklin Resources is "arguably the most crypto-friendly/blockchain-focused traditional asset manager" covered given its history of tokenizing funds and promoting digital assets. The Franklin Bitcoin ETF will have a 29 basis point fee, with no option for a waiver. Franklin shares also underperformed in 2023 with a gain of nearly 13% and have slipped more than 3% since the new trading year kicked off. Six-in-10 analysts rate the stock as a hold, while the average price target implies downside of more than 5%, per FactSet. Exchanges The legacy listing businesses of major exchanges are in the spotlight as the bitcoin ETFs begin trading, according to Worthington. Cboe Global Markets is the most popular exchange for managers of approved bitcoin funds, with six of the 11 listing on its platform. The company has previously offered spot token trading and clearing. In addition to facilitating bitcoin fund trading, Cboe will also launch margined futures for bitcoin and ether on Thursday, making it the first U.S.-regulated, crypto-native exchange to offer both spot and derivatives on the same platform. A majority of analysts rate the stock a hold, with an average target price implying a 3.1% upside. The stock has shed shortly over 1% thus far in 2024, cooling after a rally of more than 42% in the preceding year. Notably, Nasdaq has been named the exchange of choice for bitcoin funds from both BlackRock and Valkyrie, the analyst said. He added that the exchange has previously been involved in crypto infrastructure and surveillance and had planned to launch a digital currency custody before sunsetting the project early last year. It has continued to offer monitoring services for crypto markets. Shares have extended losses in 2024, down 2.5% on the year. That follows losses in 2022 and 2023, which snapped more than a decade of growth in share prices. The remaining three products will be launched on the Intercontinental Exchange 's NYSE ARCA. ICE had directly invested in Coinbase through 2021 and was once a majority owner of Bakkt, the digital asset marketplace launched it launched in 2018. The stock is well liked by analysts with 80% of those covering it assigning ICE a buy rating, according to FactSet. Shares are down more than 1% this year, taking a breather after jumping more than 25% in 2023. One common authorized participants When looking at the authorized participants firms are using in their applications, one name emerges frequently: Virtu Financial . An authorized participant is the third-party that doles out and redeems ETF shares so the fund's price reflects the underlying asset. Having one is what makes an ETF different from a mutual fund. It's a job typically held by large banks or market makers, Worthington noted. He also pointed to the fact that all nine of the applications listing Virtu have other APs such as JPMorgan , Jane Street and Macquarie. The majority of analysts have a hold rating on the stock with a target level showing shares can gain more than 7% in the next 12 months, per FactSet. That would mark a turn, as shares have dropped nearly 5% in 2024, continuing a descent seen over the prior two years. VIRT 5Y mountain Virtu over the last half decade