On September 17, the SEC approved a temporary framework for trading tokenized US equities. Called the Innovation Exemption, this framework could give Coinbase Global, Inc. (NASDAQ:COIN) a new avenue to expand its “Everything Exchange” beyond crypto.
Investor interest in disruptive-growth themes remains active despite recent market volatility. Billionaire Ken Fisher recently increased exposure to two stocks closely associated with Cathie Wood’s investment strategy, one of which is COIN. Read more: Billionaire Ken Fisher Was Buying These 2 Cathie Wood Stocks.
Baird reiterated a Neutral rating on Coinbase with a $130 price target following the move. The brokerage said the regulatory change could allow Coinbase to offer tokenized stocks and bring its asset mix closer to Robinhood Markets, Inc. (NASDAQ:HOOD).
Coinbase Already Has the Infrastructure
Coinbase Global, Inc. is not starting from scratch. In June, the company announced plans to introduce tokenized US stocks for eligible non-US customers. The product went live on Base in August. Base is Coinbase’s blockchain platform. Coinbase initially offered tokenized stocks of mega-cap companies including Apple (AAPL), Nvidia (NVDA), and Alphabet (GOOGL).
The tokens are issued by Coinbase and backed 1:1 by the underlying assets. They are designed to provide dividend payouts and shareholder rights. Those tokens allow trading around the clock and use across multiple DeFi platforms.
All that tells you that tokenized stocks are not merely a future product concept for Coinbase. The company has already built and launched the infrastructure outside the US. So that could give it a head start in the much larger domestic market if the SEC framework proves workable.
The opportunity also fits Coinbase’s broader push to become a multi-asset trading platform through its Everything Exchange strategy. That matters because the company is already trying to diversify its revenue base. And it looks to be making good progress on that front. In Q2, 88% of net revenue came from non-Bitcoin spot trading, while prediction market contracts and revenue increased 106% QoQ.
The Approval Is Temporary, and Coinbase Has a Lot to Prove
The regulatory approval does not automatically translate into revenue. The SEC’s permission is temporary, lasting five years. It’s also conditional. Only tokenized stocks that provide the same rights and privileges as the underlying stocks are allowed.
That leaves Coinbase Global, Inc. with several things to prove. It must satisfy the SEC’s conditions and adapt its existing international tokenization infrastructure to the US market. Investors would also want to see evidence of enough domestic demand for tokenized stocks to meaningfully boost Coinbase’s financial results.
At this point, the picture that emerges is that the regulatory change removes a major barrier. But it does not prove that Coinbase will generate substantial business from offering stock tokens. The investment case rests on execution and adoption.
Hedge Funds and Short Sellers Positioning Offer a Split Screen
The number of hedge funds holding Coinbase Global, Inc. shares decreased to 62 in Q2 from 65 in Q1. Yet some major funds bucked the broader trend. Cathie Wood’s ARK Investment Management increased its stake 6% to about 2.5 million shares, while Southpoint Capital Advisors raised its position 50% to nearly 1 million shares. At the same time, short sellers are becoming more aggressive. Short interest stood at 12.5% of the float as of August 31, indicating moderate bearish skepticism.
The SEC framework gives COIN a credible path into US tokenized stock trading, and its existing infrastructure could give it an early advantage. However, the opportunity is yet proven financially, and COIN still needs to show that domestic adoption can translate into meaningful revenue before tokenized equities become a material part of the investment thesis.
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