Coinbase Joins S&P 500: New Chapter for the Company and Landmark Moment for Crypto Market

Coinbase Global, the largest US cryptocurrency exchange, is set to join the S&P 500 index before the start of trading on May 19, 2025, replacing Discover Financial Services. This marks a historic milestone not only for the company itself but also for the broader cryptocurrency industry, with Coinbase becoming the first crypto-native firm to enter the prestigious benchmark.

S&P 500 Entry Criteria:

• Market Capitalisation: Minimum of $20.5 billion.
• Domicile and Listing: The company must be incorporated and have its primary listing in the US, trading on a major American exchange.
• Liquidity and Volume: A minimum monthly trading volume of 250,000 shares for each of the six months preceding the evaluation, with a ratio of annualised traded value to market capitalisation exceeding 0.75.
• Public Float: At least 50% of the outstanding shares must be available for trading by the public.
• Financial Viability: Positive net income over the most recent quarter, as well as a positive sum of net income over the trailing four quarters.
• Time Since IPO: A minimum of 12 months of public trading history.

Coinbase has met all these requirements, demonstrating net profitability (albeit minimal in the latest quarter), a substantial market capitalisation, and high stock liquidity.

Coinbase reported a marginal net profit in Q1 2025. Nevertheless, this marks the sixth consecutive quarter of profitability. However, the results significantly underperformed expectations, despite revenues remaining robust. The company exhibits a relatively low price-to-earnings (P/E) ratio, although its forward P/E is higher than the current P/E, indicating limited earnings growth prospects. Simultaneously, the second quarter is anticipated to be strong, considering the significant appreciation in cryptocurrency prices in recent weeks. Source: Bloomberg Finance LP, XTB

Implications of S&P 500 Inclusion for Coinbase:

1. Increased Demand for Shares: Inclusion in the S&P 500 triggers immediate capital inflows from passive funds mandated to track the index, necessitating the purchase of the company's shares to mirror the index composition. Estimates suggest billions of dollars in initial buying pressure. Index funds will need to acquire a substantial volume of Coinbase shares, equivalent to several days of the average trading volume.

2. Enhanced Visibility and Credibility: The S&P 500 is synonymous with blue-chip status and represents the most significant companies in the US economy. Its inclusion elevates the company's credibility among both institutional and retail investors. Coinbase automatically becomes part of retirement portfolios, mutual funds, and other institutions for whom the S&P 500 serves as a benchmark.

3. Potential for Further Growth and Price Stabilisation: Analysts are raising their price targets for Coinbase stock, citing the long-term benefits of institutional capital inflows and greater price stability due to passive fund flows. The inclusion in the S&P 500 may partially insulate the company from the volatility of the cryptocurrency market, as demand for its shares will stem not only from crypto sentiment but also from index-tracking mechanisms. However, this latter factor also introduces an additional risk – the company may react to declines in the S&P 500 driven by other constituents, for instance, in the face of weak macroeconomic data releases.

4. Symbolic Breakthrough for the Crypto Industry: This event is perceived as a "watershed moment" for the entire sector, signalling its maturity and increasing acceptance within mainstream finance. It may pave the way for other cryptocurrency companies to enter the S&P 500 in the future.

Market and Analyst Reaction:

Following the announcement, Coinbase's stock price surged by double digits, significantly increasing the company's market capitalisation. Analysts remain largely positive, highlighting the potential for further price appreciation and the long-term advantages of index inclusion. Some analysts recommend a "buy" rating, while others maintain a more cautious stance, reflecting varying approaches to the inherent risks associated with the cryptocurrency industry.

The average 12-month price target for Coinbase stock stands at $258 per share, compared to the current trading price of $242. Nevertheless, recent updates indicate even higher potential for the company. Source: Bloomberg Finance LP

Coinbase's entry into the S&P 500 is a testament to the company's success and a symbolic step forward for the entire cryptocurrency market. Having met the stringent criteria for index inclusion, Coinbase's presence in the S&P 500 is expected to drive increased demand for its shares, enhance its credibility, and potentially stabilise its price. Analysts anticipate further interest from institutional investors and view this move as a significant signal for the future of the digital asset market.

The company's shares have been correlated with Bitcoin and have gained recently, with today's rebound largely closing the divergence that arose from the stock's relative weakness in late February and March. Source: xStation5