Citi analysts upgraded shares of Coinbase (NASDAQ:COIN) to a Buy/High Risk on Tuesday in a move driven by changes in the U.S. political and legal environment that could positively affect the company's regulatory risks.
More concretely, the upward revision comes in the wake of shifts in the U.S. election landscape and the Supreme Court's decision to overturn the Chevron precedent, which is seen as a positive development for the cryptocurrency sector.
“We believe this legal tool likely increases judicial scrutiny of the SEC’s regulation by enforcement strategy,” Citi analysts wrote.
The firm noted that the ability of crypto defendants to invoke the Major Questions Doctrine might likely result in closer examination of the SEC's regulatory tactics.
Coinbase's stock has already seen a significant surge this year, with a 52% rise year-to-date (YTD), outpacing the total cryptocurrency market capitalization, which has grown by approximately 45% during that period.
Analysts suggest that the potential for a more favorable regulatory environment could unlock institutional capital and foster investment, leading to enhanced collaboration between crypto-native and traditional financial sectors.
“Along with industry/crypto market exposure, we think COIN could benefit additionally from a potential U.S. crypto catchup against relatively higher on-chain activity/liquidity that has developed abroad,” analysts added.
In terms of potential risks to this thesis, Citi noted that the current administration’s enforcement approach and SEC's stance on staking pose could pose challenges for COIN.
About one-third of on-chain tokens rely on staking, but Ethereum ETF providers are barred from staking rewards. They view ETH and other "proof-of-stake" tokens as crucial for energy-efficient crypto utility.
Uneven global regulations may concentrate staking and liquidity in certain regions, potentially affecting Coinbase's competitiveness and crypto utility development, analysts explained.