Investor enthusiasm for Coinbase shares might not last long, according to Berenberg.

The shares of Coinbase (COIN) have surged more than 30% since June 15th, following the news that Blackrock (BLK) has applied for a bitcoin (BTC) exchange-traded-fund (ETF). This outpaced the 20% gain in the price of bitcoin during the same period, according to a research report by investment bank Berenberg on Thursday.

The analysts, led by Mark Palmer, wrote, “We believe the increase in Coinbase’s share price was driven not only by the positive change in sentiment towards bitcoin and cryptocurrencies resulting from the prospect of the world’s largest asset manager playing a prominent role in the space, but also by the fact that the company was designated as the provider of custody for the fund.”

However, the report cautioned that investors considering Coinbase shares as a play on the growing institutional adoption of digital assets should first take into account the risks the company is facing, which could lead to a reversal of the recent gains in its stock price.

Earlier this month, the U.S. Securities and Exchange Commission (SEC) announced that it was suing Coinbase, accusing the company of violating federal securities law. On the same day, a task force of 10 U.S. state regulators also stated that they were pursuing legal action against the firm, alleging that it had violated state securities laws by offering its staking program to residents.

Berenberg noted that there is a looming possibility of cease and desist orders regarding Coinbase’s staking rewards program. The deadline is July 4th, and the bank believes it is highly unlikely that Coinbase will be able to convince the states that their concerns are unfounded. In the first quarter of 2023, staking represented 9.5% of Coinbase’s net revenue.

The report also stated that the potential loss of revenue from the staking rewards program outweighs the potential upside from Coinbase’s role as the custodian for Blackrock’s planned spot bitcoin ETF.

Additionally, the report mentioned that the SEC could target the USD Coin (USDC) stablecoin as an unregistered security, which could jeopardize the significant amount of revenue that Coinbase generates from its portion of the interest income earned on the assets backing the stablecoin.

Berenberg has a hold rating on the stock with a $39 price target. The shares closed at $72.43 on Thursday.

Read more: Coinbase Shares Are ‘Uninvestable’ in the Near Term: Berenberg

Edited by Sheldon Reback.

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