Coinbase Shares Soar 16% After Being Added to the S&P 500 Index

Coinbase shares surged 16% today after the company was officially announced as the newest addition to the S&P 500 index, becoming the first pure-play crypto company to achieve this milestone.

Coinbase shares surged 16% on Thursday after the company was officially announced as the newest addition to the S&P 500 index, becoming the first pure-play crypto company to achieve this milestone.

This development not only represents a watershed moment for Coinbase itself but also marks a pivotal step forward in the mainstream acceptance of the cryptocurrency industry.

Coinbase joins the S&P 500: A crypto industry milestone

Starting May 19, Coinbase will replace Discover Financial Services in the S&P 500 following Discover’s $35.3 billion acquisition by Capital One Financial. While Coinbase’s inclusion had been anticipated by many due to its size and influence, the official confirmation sent its stock soaring, reflecting both market enthusiasm and a flood of passive inflows from index-tracking funds.

Shares of COIN (NASDAQ:COIN) jumped nearly 10% in premarket trading and crossed the $240 mark after the market opened, reaching a market cap of $60.3 billion. Analysts from Oppenheimer (NYSE:OPY) have labeled the event a “watershed moment” for the sector. They noted that the once-cited “lack of deep institutional ownership” is quickly turning into a tailwind, as index funds like the SPDR S&P 500 ETF Trust (NYSE:VOT) begin buying shares.

Oppenheimer has raised its price target for Coinbase to $293, while analysts at Bernstein now see a path toward $310, pointing to massive inflows from passive and active funds.

$COIN | (COIN): Oppenheimer raises PT (from $269), keeps Outperform. S&P 500 inclusion flips institutional demand from headwind to tailwind - a pivotal catalyst realized.

The math:

• 10M users x $310 price target = $3.1B in COIN

• Active S&P 500 benchmarked funds: $7B inflow

• Index-linked ETFs: $9B inflow

= $19B in demand for COIN shares

— Giovanni Fabris (@fabris_giovanni) May 11, 2024

Bernstein estimates up to $9 billion in potential buying from index-linked ETFs and an additional $7 billion from actively managed S&P 500 benchmarked funds.

This would translate to a substantial demand for Coinbase shares, potentially placing significant buying pressure on the stock.

Coinbase shares price chart.

Source: InvestingPro

The integration of Coinbase into the S&P 500 is also poised to introduce a unique characteristic to the index. As the recognized largest crypto trading platform in the U.S., Coinbase is set to contribute 0.1% of the index’s total value and about 0.7% of its financial sector allocation.

The company, valued at $46.6 billion, boasts over 10 million active users and a 66% share of the U.S. crypto market. It also reported Q1 adjusted net income of $527 million despite a 10% drop in trading activity and revenue decreasing to $2 billion from Q4’s $2.3 billion.

Coinbase's $2.9 billion acquisition of Deribit

In a move that underscores the company’s strategic focus, Coinbase is acquiring Deribit, one of the world’s largest cryptocurrency options exchanges, for $2.9 billion.

The acquisition price, which will be paid in a combination of cash and Coinbase Class A common stock, is expected to be completed in the second half of 2024, pending regulatory approvals.

The deal will allow Coinbase to offer crypto options trading to international clients, especially in Asia and Europe, where leverage trading is more prevalent.

“The addition of crypto options to Coinbase's product suite would be a logical step in expanding its offerings to cater to both institutional investors and a growing segment of sophisticated retail traders who prefer options trading in the crypto space,” remarked Bo Pei, analyst at US Tiger Securities.

This acquisition highlights Coinbase's broader strategy to diversify its revenue streams beyond trading fees, which are subject to market volatility.

Coinbase shares have risen by 141% since the beginning of the year, demonstrating strong investor interest in the company's recovery and future growth prospects.