Coinbase (COIN) Shares Soar 24% as It Joins the S&P 500

Coinbase (NASDAQ:COIN) shares surged 24% on May 13, marking their biggest one-day gain since the day after Donald Trump’s election victory, following the announcement that the cryptocurrency exchange would be added to the S&P 500 Index, as quoted on CNBC.

S&P Global stated late on May 12 that Coinbase would replace Discover Financial Services (NYSE:DFS), which is being acquired by Capital One Financial (NYSE:COF).

Coinbase has solid exposure in exchange-traded funds (ETFs), such as First Trust SkyBridge Crypto Industry & Digital Economy ETF (NYSE:CRPT), Global X Blockchain ETF (NASDAQ:BKCH), Fidelity Crypto Industry and Digital Payments ETF (NYSE:FDIG) and Roundhill COIN WeeklyPay ETF (NYSE:COIW).

Each of these ETFs invests more than 10% of its portfolio in COIN shares. No wonder, CRPT jumped 7.4% on May 13, BKCH gained by 6.8%, FDIG added 6.7% and COIW shot up 30%.

Companies added to the S&P 500 often experience a rise in their stock prices due to passive funds and ETFs that must purchase shares to track the benchmark index. To qualify for inclusion in the S&P 500, a company must be profitable both in its latest quarter and cumulatively over the previous four quarters.

Coinbase met those requirements with net income of $65.6 million in its latest earnings report, though down from $1.18 billion a year ago due to adjustments related to crypto valuations. Revenues rose 24% year over year to $2.03 billion.

Coinbase has been closely aligned with the return of Donald Trump to the White House. The stock soared 31% on November 6, the day after the election, thanks to expectations that the new administration would take a more favorable stance toward cryptocurrency following four regulatory-heavy years under President Biden.

However, Coinbase shares’ journey has been rough this year, with share drops of 26% in February and 20% in March, largely due to market uncertainty from Trump's tariff announcements. Including Tuesday's rally, the stock is now off by 0.1% so far this year.

The beginning of Trump’s new term has generally been positive for the crypto industry, with early steps including deregulation and an executive order to create a strategic Bitcoin reserve. However, legislation has yet to gain traction due to controversy surrounding Trump’s personal crypto dealings, including a meme coin project tied to his family.

Note that the broader crypto market is also booming. Bitcoin surged past $100,000 last week. This momentum has further lifted sentiment around Coinbase and other crypto-linked assets.

Coinbase also hit headlines last week with the announcement of a $2.9 billion acquisition of Deribit, a major crypto derivatives exchange based in Dubai. The deal — the largest in the crypto industry to date — is expected to help Coinbase expand its global presence and diversify revenue streams outside the United States.

Coinbase: A Risky Play Despite Growth Potential

While Coinbase is riding on several growth factors, the company’s fundamentals and valuation are at risk. Investors can thus tap the stock via the ETF route in order to minimize the company-specific concentration risks.