Coinbase Stock Surges 24% on S&P 500 Inclusion

Coinbase, the largest cryptocurrency exchange in the United States, experienced a significant surge in its stock price, rising by 24% on Tuesday. This substantial increase was driven by the company's inclusion in the S&P 500 index, a move that was announced by S&P Global after the market closed on Monday and took effect on Tuesday morning. This development marks a pivotal moment for Coinbase, as it navigates the evolving regulatory landscape under the current administration.

As one of the most widely followed benchmark indices globally, changes in the S&P 500's composition often trigger substantial shifts in passive fund allocations. For Coinbase, this inclusion represents a critical turning point, especially given the tumultuous policy environment for cryptocurrencies since the current administration took office. On November 6, the day after the U.S. presidential election, Coinbase's stock price soared by 31% on expectations of more cryptocurrency-friendly policies from the new government.

Political dynamics have always been a significant factor in the cryptocurrency industry. Coinbase and its CEO, Brian Armstrong, have been deeply involved in the 2024 election cycle. The company has allocated 75 million dollars through its political action committee, Fairshake, while Armstrong personally contributed over 1.3 million dollars to various candidates, supporting those who advocate for cryptocurrency-friendly policies.

Despite the administration's efforts to promote a Bitcoin strategic reserve plan through executive orders, the legislative process has stalled. Market analysts attribute this delay to the administration's involvement in commercial ventures related to cryptocurrency meme coins, which has slowed down the implementation of policies. As a result, Coinbase's stock price has experienced significant volatility this year, with a 26% drop in February due to tariff policy concerns and a 20% decline in March. However, the stock has since rebounded, maintaining an approximate 3.5% year-to-date increase.

Oppenheimer analyst Owen Liu, in a recent report, noted that joining the S&P 500 will not only trigger a wave of passive fund investments but also prompt active management funds to reassess their positions. Liu, who has given Coinbase an "outperform" rating, emphasized that despite Coinbase's dominant position in the cryptocurrency industry, institutional investors' holdings in the company are still significantly below their potential levels.

This change in the index composition could reshape the relationship between Coinbase and the broader cryptocurrency market. Liu suggested that as passive funds tracking the S&P 500 increase their holdings, Coinbase's stock price volatility may decrease. The passive allocation demand could act as a natural buffer, partially offsetting the impact of volatile cryptocurrency prices.

However, there is some disagreement among market analysts. While the average rating from platform analysts and investment banks is "buy," the Seeking Alpha quantitative system has given a "hold" rating. This discrepancy reflects the clash between traditional valuation methods and the emerging cryptocurrency economy.

Since its direct listing on the Nasdaq in 2021, Coinbase's fortunes have been closely tied to the cryptocurrency market. With Bitcoin's price surpassing 100,000 dollars last week and traditional financial institutions entering the market through spot Bitcoin ETFs, Coinbase's strategic position has been significantly enhanced.

The company's latest financial report shows a 24% year-over-year increase in third-quarter revenue to 2.03 billion dollars. Although the net profit, adjusted for the fair value of cryptocurrency assets, fell to 65.6 million dollars (approximately 0.24 dollars per share), it still met the S&P 500's requirement of cumulative profit over the past four quarters for inclusion in the index.

To strengthen its industry leadership, Coinbase recently announced a major acquisition: a 2.9 billion dollars deal to acquire Deribit, a Dubai-based cryptocurrency derivatives exchange. If completed, this record-breaking transaction will help Coinbase expand its operations beyond the United States. Currently, this cryptocurrency giant stands at the intersection of policy benefits and technological innovation, with its stock performance likely to continue reflecting the complex interplay between the digital asset industry and macroeconomic policies.