By Jack Denton 

The high-profile fund manager Cathie Wood is still buying shares in Coinbase Global, even as the regulatory outlook for the company and the digital-asset sector grows less certain.

Other investors are more cautious.

Two of the exchange-traded funds run by Wood's Ark Investment Management have bought significant amounts of Coinbase (ticker: COIN) stock in recent days. Wood's flagship ARK Innovation ETF (ticker: ARKK) scooped up some $13.5 million worth of shares in Coinbase, according to trading updates from the group on both Monday and last Friday. The ARK Next Generation Internet ETF (ARKW) bought about $2.2 million of stock at current prices over the same period.

Wood's funds, which typically bet on high-growth companies, have been on much the same roller coaster as the likes of Coinbase over the past couple of years. They rode the 2020 and 2021 bull market higher before crashing down in 2022. The flagship ARK fund is down more than 40% in the past year.

The funds' renewed bullishness on Coinbase comes as shares in the group -- which have lost more than 70% in the past 12 months amid a crash in Bitcoin prices and the wider market selloff -- have been on an even wilder ride.

Coinbase stock is up more than 50% so far this year, with double-digit moves on many days. Not only is the stock heavily bet against, creating the potential for short squeezes like the one that boosted GameStop stock $(GME.AU)$ during the meme-stock frenzy, but the landscape in the crypto business seems to be changing almost daily.

Most pressing for Coinbase has been renewed regulatory uncertainty given what increasingly looks like a crackdown on crypto from U.S. regulators.

The Securities and Exchange Commission last week took action against "staking" services, which allow investors to earn yield on tokens like Ether, offered by the crypto exchange Kraken. The SEC alleged that the product was a security, and that Kraken hadn't made the proper registrations and disclosures to sell it.

That put a similar service offered by Coinbase -- which analysts have highlighted as key to the company's efforts to diversify -- under the spotlight. The company has argued that its business is sufficiently different from Kraken's.

Richard Repetto, an analyst from Piper Sandler, said Coinbase "could undergo a key test of regulatory compliance." But it isn't all bad news.

"As the SEC moves toward what appears to be a more aggressive stance on crypto regulation, we are cautiously optimistic that Coinbase won't be weighed down by recently increased scrutiny around staking," Repetto said in a Monday note. "While the recent pullback in the stock clearly reflects the possibility of increased regulatory risk, still we believe longer-term regulatory clarity is likely positive both for the crypto industry and Coinbase itself."

Cathie Wood probably agrees -- or may even be more optimistic. We'll see if Ark keeps buying the stock.

Write to Jack Denton at jack.denton@barrons.com

(END) Dow Jones Newswires

February 14, 2023 13:15 ET (18:15 GMT)

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