Coinbase stock price skyrocketed. Why crypto platform stock prices keep rising.

Coinbase Global stock has defied skepticism and is one of the best performers over the past 12 months. Barons— that it will thrive even amid regulatory crackdowns on digital assets. As of early Wednesday afternoon, the stock had more than quintupled to $264 since hitting a low of $46.43 last June.

Several factors are contributing to the boost in profits. The approval of the first exchange-traded fund (ETF) to hold Bitcoin, a long-held goal of crypto advocates, comes amid growing speculation that financial institutions and financial advisors are looking to add to the digital asset. It is that you are. Add to their portfolio in bulk. JPMorgan estimates these new ETFs raised a net $1.045 billion on Tuesday, setting a single-day record and bringing total assets to more than $31 billion.

Bitcoin also set new records this year. The stock was trading at about $73,000 on Wednesday, an increase of 200% in the past 12 months.

ETFs can be traded on stock platforms like Robinhood Markets and Fidelity with little or no commission. That raised concerns that the new funds could eat into transaction volumes at Coinbase, which charges fees.

But so far, those concerns have proven unfounded, according to analysts led by Devin Ryan, director of financial technology research at JMP Securities.

Ryan estimates in a research note that the new ETF could attract $220 billion in inflows over the next three years, driving up the price of Bitcoin. Ryan said interest in Bitcoin will increase trading in other digital assets, and Coinbase's revenue will diversify into other aspects of the digital economy, such as payments and the tokenization of real-world assets. . Previously, most of the company's revenue came from retail transactions.

“What we think is still largely missing from most people is that we estimate that Coinbase will grow along with the entire crypto ecosystem, far beyond just trading volume,” Analyst said. List et al. JMP Securities maintained its market outperform rating on the stock, but raised its price target from $220 to $300.

Coinbase declined to comment. Coinbase executives have said in the past that Coinbase is looking to diversify its revenue stream from trading with the goal of making money in both bull and bear crypto markets.

Of course, when investors buy Coinbase stock, they're making a big bet on whether the company can live up to its supposedly sky-high valuation.

The company trades at a price-to-earnings ratio of about $264, or 687 times trailing 12-month earnings, according to FactSet, and has averaged about 126 times since going public. His P/E ratio for the following 12 months of earnings is 162.

The average rating among analysts for the company is a “hold,” according to FactSet, with a price target of $184.47, implying a 30% downside from current levels.

Another big question mark for the company is how digital assets will ultimately be regulated in the United States. Coinbase is being sued by the Securities and Exchange Commission for allegedly operating an unregistered securities exchange, a charge the company is contesting. A judge is expected to rule on whether the case can proceed in the coming weeks. If Coinbase ultimately loses, it could significantly limit the products it can offer domestically.

In a separate lawsuit, Coinbase is also trying to convince a panel of judges to force the SEC to enact clear rules on how digital assets should be regulated. SEC Chairman Gary Gensler said he believes the rules are already clear and that crypto companies have an obligation to abide by them.

All the investment winds seem to be blowing in Coinbase's favor so far this year. But a lot needs to go right going forward to justify a stock price of more than 150 times forward earnings.

Email Joe Light at joe.light@barrons.com.