Shares of Coinbase Global (COIN) rebounded following the firm’s earnings miss and were up nearly 7% in pre-market trading on Thursday, a week after the company struck a deal with asset management giant BlackRock.
Coinbase shares dropped in extended trading on Tuesday after the crypto exchange reported a loss of over $1.1 billion in the second quarter, a departure from the $1.59 billion in net income from a year earlier, and missed analysts’ estimates for revenue.
Shares of Coinbase appreciated about 20% last Wednesday after bitcoin’s price rose above $23,000, reclaiming its 200-week moving average. The following day, Coinbase announced a partnership with BlackRock that will enable institutional clients of Aladdin, BlackRock’s investment technology solutions platform that supports nearly $22 trillion in assets managed by 55,000 investment professionals, to trade bitcoin and take advantage of Coinbase’s custody, prime brokerage, and analytics solutions, according to ARK Invest.
While the firm’s disappointing earnings have dominated headlines this week, the deal with BlackRock unlocks many growth opportunities. The deal could usher trillions of dollars into the crypto asset class in the coming years, according to Max Branzburg, vice president of product at Coinbase.
“In our view, the partnership has the potential to validate cryptocurrencies as a new asset class and accelerate bitcoin’s institutional adoption,” ARK Invest wrote in recent commentary. “Coinbase is a leading centralized cryptocurrency exchange serving both retail and institutional clients.”
At the core of the partnership will be an interconnection between Coinbase Prime and BlackRock’s Prime, in which Aladdin’s user base will have access to Coinbase Prime’s prime broker, trading, reporting, and custody solutions. Coinbase Prime is an institutional prime brokerage platform that offers its 13,000 clients custody and advanced trading solutions, according to Yassine Elmandjra, ARK Invest analyst.
“BlackRock’s decision to partner with Coinbase is a strong signal that institutions consider crypto – starting with bitcoin – a new asset class,” Elmandjra wrote. “We agree that bitcoin has earned an allocation into well diversified portfolios.”
Based on daily returns across asset classes during the past 10 years, ARK’s analysis suggests that an allocation to bitcoin in well-diversified portfolios should range from 2.55%, when minimizing volatility, to 6.55%, when maximizing returns per unit of risk, Elmandjra wrote.
Based on ARK’s simulated portfolio allocations, institutional allocations between 2.5% and 6.5% could impact bitcoin’s price by $200,000 and $500,000, respectively.
Coinbase is a top-three holding in the ARK Fintech Innovation ETF (ARKF), weighted at 8.39% as of August 11, according to the fund’s website.
ARKF is an actively managed ETF that invests in companies deemed to be engaged in the theme of fintech innovation, defined as the introduction of a technologically enabled new product or service that potentially changes the way the financial sector works. This includes transaction innovations, blockchain technology, risk transformation, frictionless funding platforms, customer-facing platforms, and new intermediaries, according to the fund’s website.
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