Clarity Act Failure Could Bring Opportunity With This ETF

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Cryptocurrency prices tumbled on Tuesday when the Clarity Act failed to advance out of the Senate. Crypto-related equities weren’t spared in the carnage. As one example, cryptocurrency brokerage giant Coinbase Global
(COIN) slumped 10.1% after the Clarity Act procedural vote stalled.

Obviously, a one-day decline of 10.1% for shares of Coinbase is bad news for the Direxion Daily COIN Bull 2X ETF
(CONX) — an ETF designed to deliver 200% of the daily performance of Coinbase shares. However, both the stock and CONX could be assets to watch as the market moves past Clarity Act disappointment.

Looking beyond that legislation, CONX and the Direxion Daily Bitcoin Bull 2X ETF
(BTCU), which attempts to deliver returns that correspond with 200% of the daily performance of the largest plain vanilla spot bitcoin ETF, are geared ETFs to watch over the near-term. After all, if bitcoin adheres to its four-year cycle history, the largest digital currency could notch a bottom next month. From there, a new bull market could be born, potentially supporting gains for the two Direxion leveraged ETFs.

CONX Catalysts

It will be overlooked due to Clarity Act headlines, but specific to Coinbase shares and CONX, it’s worth noting that on Tuesday, Morningstar upped its fair value estimate on the stock to $168 from $150.

“Around $5 of the increase comes from the time value of money since our last model update,” noted analyst Michael Miller. “The other $13 comes from higher cryptocurrency trading and custody revenue projections as we incorporate higher cryptocurrency valuations into our model.”

Miller noted that while Coinbase has made “tangible progress in its efforts to reduce its exposure to cryptocurrency market conditions,” the share price is still tethered to activity in the cryptocurrency market. So, if bitcoin puts in a bottom and starts a new bull market soon, COIN and CONX would benefit.

Fortunately, the expectation is that Coinbase will be profitable over the second half of this year. That implies that CONX will be a credible way for tactical traders to play the company’s next earnings report. Any updates on prediction markets and Coinbase “umbrella” app efforts could also bring opportunity with this leveraged ETF.

“Coinbase’s new strategy of becoming an ‘everything exchange’ will reduce the firm’s reliance on the price performance of a single highly speculative asset class and drive revenue growth by better monetizing its users’ demand for speculative products,” added Miller.

For more news, information, and analysis, visit the Leveraged & Inverse Content Hub.

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Source: etfdb.com