Insights

Coinbase Jumps Again and Silvergate and Hut 8 Mining Gain on Wednesday

What happened 

Shares of Coinbase Global (NASDAQ: COIN) jumped on Wednesday after the Senate Agriculture committee put forward a bipartisan bill that would identify and classify “digital commodities” that would be overseen by the Commodities Futures Trading Commission (CFTC). After Coinbase was caught up in the Securities and Exchange Commission’s (SEC) enforcement of cryptocurrencies, this was welcome news to the company and investors. 

Coinbase stock jumped as much as 22.3% in trading on Wednesday after the bill was reported. Silvergate Capital (NYSE: SI) jumped 6.7% as well and could benefit from clearer regulation while Bitcoin miner Hut 8 Mining (NASDAQ: HUT) popped 12.4% today. The stocks were up 19.3%, 1.8%, and 9.4% respectively at 2:15 p.m. ET. 

So what 

The crypto industry has been looking for regulatory guidelines given the grey area the industry currently operates in domestically and this may be a step in that direction. The CFTC has always been the preferred regulator in part because the SEC has been more hostile to cryptocurrencies

Legislation is currently still in committee, but the early language would set a standard for crypto regulation, define what a digital commodity is, and require trading platforms to register with the CFTC. At this point, simply defining what’s a digital commodity and what’s a security would be a welcome clarification for the industry. 

Bitcoin would clearly be defined as a commodity by the bill and that’s one reason Hut 8 Mining is jumping today. Its business could be threatened if the SEC gets too overzealous, but this would likely allow it to operate as usual. 

I will also note that hacks related to Solana today and a number of other hacks this week have led investors to find ways to secure their digital assets. Coinbase could be a natural leader in the custody of assets, which may be helping the stock today. 

Now what 

The crypto industry continues to take steps toward the mainstream, but it’s at a slow pace. Regulators have added uncertainty over the last few years by not having rules in place for crypto while developers are building so quickly that even the most active followers can’t keep up. That’s bound to lead to tension between innovative companies and lawmakers. 

I think there’s been some fairly bullish commentary from both the White House and Congress in 2022 and that could lead to some sensible regulation in the near future. The CFTC has always been a preferred regulator for most cryptocurrencies and there’s a discussion of “digital securities” in the bill as well, which could allow the SEC to oversee some crypto. 

If Coinbase gets some clarity over regulations that would be good news. Otherwise, it takes this fight to court, which doesn’t help anyone but lawyers. That’s why the market reacted so sharply to potential regulation changes today. 

Travis Hoium has positions in Coinbase Global, Inc. and Solana. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Inc., and Solana. The Motley Fool recommends Silvergate Capital Corporation. The Motley Fool has a disclosure policy.

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