Coinbase Stock Hits 2.1% Drop Amid Legal Setbacks and ETF Rebalancing

Coinbase Inc. (COIN) stock experienced a significant decline, dropping 2.1% to $345.79 during midday trading after the U.S. Supreme Court declined to hear the cryptocurrency exchange’s appeal regarding IRS data access.

Legal Hurdle Cleared?

Amid the rally triggered by the market news, Coinbase stock subsequently fell 2.1%. The decline stems from two major factors: the Supreme Court’s decision and substantial selling related to portfolio adjustments.

Dual Blow: Court Decision & Fund Rebalancing

On Monday, the Supreme Court rejected Coinbase’s appeal, “Harper v. Faulkender”. This appeal challenged the IRS’s authority to issue a “John Doe” summons requesting user transaction data without identifying specific targets.

Coinbase and privacy supporters hoped the Supreme Court would reconsider the “third-party doctrine,” possibly granting crypto exchanges privacy protections similar to those afforded to cell phone providers concerning client call data. The rejection means this particular legal challenge proceeded without the highest court’s intervention.

Selling Pressure from ARK Rebalance

The selling pressure was also significant, linked to a rebalancing move by ARK Invest, the firm managed by noted Bitcoin proponent Cathie Wood.

ARK sold $95 million worth of Coinbase shares on Monday, divesting from its flagship ARK Innovation ETF (ARKK), ARK Next Generation Internet ETF (ARKW), and ARK Fintech Innovation ETF (ARKF) during the process.

Fund managers routinely engage in portfolio rebalancing to maintain desired allocation strategies. While not necessarily indicating a change in fundamental view of the company, this action certainly contributed to the downward pressure on the stock.

Recent Performance Remains Positive

Despite the Monday setback, Coinbase stock has maintained a positive trajectory over a recent period. From a nearly $173 starting point in April, shares more than doubled by the end of June, reaching $350.49.

Analyst Views and Future Outlook

Conservative year-over-year performance metrics have done little to dim analyst enthusiasm. Earlier in the week, just before the drop, Coinbase stock reached a new all-time high close of $375.

Analysts vary in their assessments. Benchmark analysts recently called the company “transformative” with a $402 price target. Bernstein analysts concurred it was “misunderstood,” citing a more ambitious $510 target. The stock’s current price remains well below these peaks.

William Blair analyst A. Jeffrey anticipates a potential $1.33 per share earnings gain following Coinbase’s upcoming report. The company’s next scheduled earnings call is set for early August.