Coinbase shares rose sharply by 62% in November - the second strongest month for the firm since it went public on the Nasdaq in 2021. This was the same month that Sam Bankman-Fried, the founder of FTX, was found guilty of fraud and Changpeng Zhao, the creator of Binance, confessed to criminal offences. Analysts at JPMorgan contended in their report that the introduction of Bitcoin ETFs could offer Coinbase a short-term benefit, yet will likely be detrimental for the company over the long haul.
This month saw two key figures in the crypto industry headed for prison, but that did not stop Coinbase's stock from rocketing more than 60%, its second-best monthly performance since its public listing in 2021. Booming bitcoin and ether prices - combined with an untimely crises for competitors - helped make Coinbase one of Wall Street's most attractive investments this year, with the stock jumping by more than 250% over the first 11 months of 2023. For those who bought the stock early, the figures help ease the substantial losses sustained in 2022 when Coinbase's value plummeted by 86% as inflation and rising interest rates spurred investors to sell cryptocurrencies and tech stocks to seek out supposedly safer investments in a recession. Tech stocks have made a stunning comeback in 2023, particularly those related to AI and crypto; Coinbase has the advantage of having weathered the crypto winter, while several of its adversaries disappeared or downsized. The industry has experienced a watershed moment this month, when the founder of former Coinbase rival FTX, Sam Bankman-Fried, was convicted of seven counts of criminal fraud linked to the collapse of his exchange and the theft of customer funds following a month-long trial. The following week, Changpeng Zhao, the founder of Binance, admitted to violating the Bank Secrecy Act in connection with a failure to construct an effective anti-money laundering program and for defying U.S. financial sanctions.
Bankman-Fried, who is facing the possibility of a lifetime in jail, is due to be sentenced in March, while sentencing for Zhao is to occur in February. Guidelines advocate for a 12 to 18 month sentence, but the Justice Department could pursue a more extended punishment. In comparison to FTX, which declared bankruptcy in late 2022, Binance has maintained its existence without its prior CEO Zhao's participation as part of his plea deal. Binance’s trading volume fell by two-thirds from the first to third quarters of the year, as reported by crypto analyst site CoinGecko. Even with over $65 billion in assets, Binance’s global market share dropped from 60% in February to less than 50% in September, as highlighted by CoinGecko. Subsequent to the Justice Department’s declaration of its $4.3 billion settlement with Binance, customers withdrew more than $1 billion from the exchange and Kaiko data showed a 25% decrease in liquidity. A Binance spokesperson stated that Zhao was at court "to protect users and guarantee the longevity of our company". They also confirmed that Binance is still the world's largest crypto exchange by volume and that there has been an upturn in the amount of institutional user transactions. According to CoinGecko, Coinbase, the fourth-biggest exchange globally by daily volume, is the only one that is publicly traded in the U.S. with a market cap of almost $30 billion. Mizuho analysts wrote in a Wednesday customer report that they believe the recent spike in Coinbase shares was in expectation of the possible share gains due to outflows from Binance. Still, Mizuho preserved its underperform rating on the stock and increased its price target to a maximum of $35. Coinbase shares fell by 2.4% to $124.72 on Thursday, undoing some of their recent growth.
A Coinbase spokesperson declined to provide a statement for this article, however CEO Brian Armstrong said to CNBC's Joumanna Bercetche this week that the settlement with Binance permits the crypto sector to go beyond a series of scandals. "This enforcement action versus Binance is allowing us to turn the page on that and with luck, close that chapter of the past," Armstrong commented. "I trust that regulatory clarity is going to draw in additional investment, notably from organizations."
Coinbase and Binance still remain embroiled in legal disputes with the Securities and Exchange Commission, with the latter concluding a settlement; however, Coinbase executives have threatened to relocate to an overseas jurisdiction with more concrete regulations on crypto if the company is unable to reach a resolution with the SEC. Despite this, Needham analysts, who recommend purchasing Coinbase shares, have said that the firm is better off than during the last cycle and that additional exchanges, including Bittrex, have recently withdrawn from the crypto market. It is anticipated that U.S. regulators will soon authorize the first bitcoin exchange-traded funds in the country, possibly providing more options for aspiring investors to buy in. JPMorgan Chase analysts have commented that although this will temporarily result in an increase of custody revenue for Coinbase, in the long-term this could lead to decreased usage and consequently pricing pressure.
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