Analyzing the Regulatory Landscape
An equity research analyst at Berenberg Capital Markets, Mark Palmer, has expressed his belief that MicroStrategy presents a safer investment opportunity compared to Coinbase due to the latter’s regulatory challenges. Palmer predicts that the US Securities and Exchange Commission (SEC) will likely take enforcement action against Coinbase as it intensifies its scrutiny of the cryptocurrency sector. In light of this uncertainty surrounding Coinbase, Palmer suggests that investors would be better served by investing in shares of MicroStrategy.
The Performance Differential
MicroStrategy, a renowned software maker and the largest public holder of Bitcoin, has experienced a remarkable increase of more than 90% year-to-date (YTD). On the other hand, Coinbase’s shares have only risen by 63% over the same period. The significant surge in MicroStrategy’s share price can be attributed to the resurgence of Bitcoin in recent months, which has gained over 60% YTD.
According to Palmer, MicroStrategy is an attractive alternative to Coinbase due to the regulatory pressures faced by the latter. The SEC has categorized Bitcoin as a commodity while viewing the majority of other cryptocurrencies as securities. As MicroStrategy is a major holder of Bitcoin, it becomes an appealing choice for investors seeking stability and regulatory compliance. Palmer further suggests that the SEC’s recent enforcement actions against crypto exchanges like Kraken and Bittrex, as well as crypto lending platform Nexo, could indicate how the commission may approach Coinbase.
“Given the heightened uncertainty that Coinbase faces, we believe investors would be much better served investing in shares of MicroStrategy.” – Mark Palmer
Coinbase’s Legal Battle
The SEC’s legal battle with Coinbase has been escalating. In March, the commission issued a “Wells notice” to Coinbase, threatening the exchange with legal action regarding some of its listed digital assets, Coinbase Earn, Coinbase Prime, and Coinbase Wallet. In response, Coinbase CEO Brian Armstrong accused the agency of engaging in “sketchy behavior” and filed a lawsuit with a federal appellate court, alleging that the SEC failed to respond to Coinbase’s rule-making petition while intending to pursue enforcement actions against the exchange for listing unregistered securities.
In an attempt to seek clarity on the regulatory landscape, Armstrong has suggested that Coinbase may consider relocating if US regulators do not provide a clear approach to the digital asset space. He emphasized that “anything is on the table, including relocating or whatever is necessary” during the Innovate Finance Global Summit.
“Anything is on the table, including relocating or whatever is necessary.” – Brian Armstrong
