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This Stock Will Benefit from An Ethereum ETF Approval This Week – Don’t Miss the Next MicroStrategy

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Shares of Coinbase Global (NASDAQ:COIN) soared more than 8% higher on Monday and were rising again on Tuesday, spurred by some potential big news in the cryptocurrency world.

As of Tuesday at market close, Coinbase stock was trading at around $226 per share, up from $208 as of Monday morning. Year-to-date, Coinbase stock is up about 44%. 

The likely catalyst for Coinbase, the largest cryptocurrency exchange in the U.S., had to do with growing sentiment that the Securities and Exchange Commission (SEC) will soon approve spot Ethereum exchange-traded funds to trade on U.S. markets.

Here’s why that’s big news for Coinbase.

Spot Ethereum ETFs could soon become reality

Crypto stocks, including Coinbase, got a boost after noted ETF analysts from Bloomberg posted on X that they had increased their odds that the SEC will approve spot Ethereum ETFs to 75%, up from 25% just a day earlier.

Bloomberg analyst Eric Balchunas wrote Monday that he was “hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they’d be denied).”

Further, CoinDesk reported that exchanges have been asked by the SEC to update their 19b-4 filings, which are forms to record a rule change with the SEC, on an “accelerated basis.” 

Also, ETF Institute co-founder Nate Geraci posted that a decision on spot Ethereum ETFs could come by this Thursday. He and others noted that spot Ethereum ETFs could not actually launch until the SEC also approved S-1 registration statements, and there would be no timeline for that.

But still, the potential for spot Ethereum ETFs to become a reality sooner rather than later is looking increasingly good, and it has helped crypto industry stocks, like Coinbase.

What it means for Coinbase

As the leading cryptocurrency exchange in the U.S., Coinbase is where hundreds of crypto coins and tokens worth billions of dollars are traded by millions of Americans on a daily basis.

If spot Ethereum ETFs are approved, it would mean significantly more trading volume on the Coinbase exchange, which would result in higher revenue for the company. 

In the first quarter of 2024, Coinbase saw a 72% year-over-year increase in revenue to $1.6 billion, and a major driver was the launch of 11 spot Bitcoin ETFs in January. Those ETFs have already reached $12.5 billion in inflows. 

But beyond that, Coinbase saw a 64% spike in custodial fee revenue to $32 million in the first quarter, primarily due to the fact that it is the custodian for 8 of the 11 bitcoin ETFs. Should the spot Ethereum ETFs get approved and launched, Coinbase could expect a similar boost. 

Further, Coinbase offers ETH staking-as-a-service to its users, which is essentially a way of generating a yield of around 2% to 5% on ETH holdings. The company would get a cut of this for providing the service, so that’s another way that rising Ethereum ETF assets would help increase revenue.

In addition, Coinbase manages Base, which is a very popular “Layer 2” block network within the Ethereum ecosystem to improve Ethereum’s scalability and speed. The spot Ethereum ETFs would certainly expand this network, which would, in turn, benefit Coinbase in terms of more traffic and higher revenue. And the new Coinbase “smart wallet” will allow Coinbase users to go straight into the Base ecosystem and Ethereum, making it easier to access.

So, the approval of spot Ethereum ETFs would benefit Coinbase in multiple ways, perhaps even more than the arrival of spot Bitcoin ETFs did, as Coinbase has massive Ethereum holdings. And, unlike Bitcoin, Ethereum is a productive asset that generates yield, so Coinbase can earn yield from its holdings.  

The next MicroStrategy?

MicroStrategy has been one of the hottest stocks on the market this year, up some 150% year-to-date. Back in January, shortly after the Bitcoin ETFs were approved, MicroStrategy was trading at around $450 per share. Now, it is trading at more than $1,700 per share. While the company’s main business is providing business intelligence software and services, its growth came from its massive holdings in Bitcoin, as the company is the largest corporate owner of Bitcoin in the country.

As of the end of the first quarter, MicroStrategy owned 214,000 Bitcoin worth an estimated $13.6 billion. The stock’s meteoric rise has been almost exclusively tied to the spike in the price of Bitcoin over that same period, which was fueled by the ETFs.

Could Coinbase be the same type of proxy for Ethereum, should the ETFs get the go ahead? It is definitely worth watching. However, Coinbase certainly has broader appeal than just its ties to Ethereum as the largest crypto exchange in the U.S., so it is basically a proxy for the crypto market. But a surge in the price of Ethereum related to the ETFs would indeed help.

As always, invest in these assets with care and caution as they are very volatile. Ideally, they should be a small portion of a broadly diversified portfolio.