Coinbase Shares Surge 16% on S&P 500 Inclusion

Coinbase, a prominent crypto exchange, experienced a significant surge of 16% in its share price early Tuesday following the announcement of its inclusion into the S&P 500 index. This addition is set to take effect after the market closes on Friday, replacing Discover Financial Services, which is in the process of being acquired by Capital One.

According to analysts from Bernstein, this move could generate approximately $16 billion in buying pressure for Coinbase. This estimate is broken down into $9 billion from passive funds linked to the S&P 500 and an additional $7 billion from active allocations. Coinbase is notable for being the first and only crypto company to be included in the S&P 500 index.

Gautam Chhugani, an analyst at Bernstein, has an outperform rating on Coinbase shares with a price target of $310, indicating a potential upside of about 30% from the current share price of $240. This forecast underscores the positive sentiment surrounding Coinbase's inclusion in the index.

Investment bank KBW estimates that S&P 500 passive funds will need to purchase around 36 million Coinbase shares to align with the index inclusion. This volume is roughly equivalent to four days of average buying volume, suggesting a manageable but substantial demand for Coinbase shares.

KBW also noted that as of April 30, 9.9 million Coinbase shares were held short, which translates to approximately 1.4 days to cover. This information highlights the potential for short sellers to influence the market dynamics surrounding Coinbase's inclusion in the index.

Historical data from KBW indicates that since 2017, companies added to the S&P 500 have outperformed the market by an average of 5.2% on the day following the announcement. This trend suggests that Coinbase's addition to the index could lead to similar performance gains, potentially paving the way for other crypto firms to join the index in the future.