While other investors exited Coinbase (COIN) shares, Cathie Wood's Ark Invest benefited.
According to a daily trading alert, Wood's flagship fund, the ARK Innovation ETF (ARKK), bought more than 400,000 shares of the crypto exchange worth over $20 million at yesterday's close on Tuesday. The purchase comes after the Securities and Exchange Commission (SEC) filed a lawsuit against the crypto company that caused Coinbase's shares to fall by as much as 16%.
On Wednesday, Coinbase shares rallied more than 3% in afternoon trade following the unveiling, while shares of ARKK fell 1%.
Wood has long been a supporter of cryptocurrencies, and Ark Invest has largely continued to increase its stake in Coinbase despite increasing regulatory scrutiny (although the company sold some shares last July when the SEC announced its investigation into cryptocurrency exchanges).
On Tuesday, Ark saw another buying opportunity as Coinbase stock took a hit after the SEC expanded its crackdown on cryptocurrencies.
The SEC filed a lawsuit alleging that Coinbase violated securities laws by operating its crypto-asset trading platform as an unregistered securities exchange, broker, and clearing house and by allowing the offering and sale of its crypto-asset staking-as- a service did not register program.
Coinbase took to Twitter to defend itself against the SEC allegations. Co-founder and CEO Brian Armstrong made several points in response to the lawsuit: tweet: “The SEC and CFTC have made conflicting statements and don't even agree on what is a security and what is a commodity.”
Mark Palmer, senior equity research analyst at Berenberg Capital Markets, told Yahoo Finance (video above) that the crackdown on Coinbase shouldn't have come as a surprise and that “the upshot here is that the trawl manhunt the SEC launched into cryptocurrencies has undertaken.” continues.”
SEC is coming for crypto
Coinbase isn't the only major player caught in the crosshairs of federal regulators; The SEC's lawsuit marks the second time in as many days that the agency has taken legal action against crypto companies.
On Monday, Coinbase's rival Binance was the target. The SEC filed a complaint alleging, among other things, that Binance operated illegal platforms to offer and sell crypto-asset securities to US investors. The SEC pursued its lawsuit against Binance Tuesday night, seeking a court order to freeze and repatriate the assets of two of its entities.
Regulators have made good on their threat to crack down on cryptocurrencies, especially after FTX collapsed in November 2022. At its core, cryptocurrency players argue that tokens are not securities, while the SEC disagrees.
“The only thing that was a little twist [in the Coinbase lawsuit] is the fact that the SEC has specifically focused on 13 tokens that it has identified as securities that Coinbase trades,” Palmer said. “There are big names – Solana, Cardano, Polygon, plus 10 others that are lesser known.”
While the enforcement actions aren't “ideal,” according to Lisa Ellis, a partner at Moffett Nathanson, they're a “necessary” step toward crypto adoption.
“We've needed regulatory clarity in the United States for many years,” Ellis told Yahoo Finance Live. “And the SEC has kind of held the industry hostage for the last year and a half by enforcing those enforcement actions to a certain extent, but not having a constructive dialogue about which issues really worry them and which don't.” This is sort of narrowed down and in terms of setting the right rules.”
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