Coinbase Joins S&P 500, Triggering $16B in Potential Buying Demand

Coinbase (COIN) saw a significant 16% surge early on Tuesday after news broke Monday evening that it would be added to the S&P 500 index.

The cryptocurrency exchange will be included in the S&P 500 after the market close on Friday, replacing Discover Financial Services (DFS), which is being acquired by Capital One (COF).

Analysts from Wall Street brokerage Bernstein estimate that this move could lead to about $16 billion in buying pressure for Coinbase. Of this, roughly $9 billion is expected to come from passive funds tracking the S&P 500, while active funds are anticipated to contribute an additional $7 billion.

Coinbase will become the “first and only crypto company to join the S&P 500,” according to the analysts, led by Gautam Chhugani. Chhugani maintains an outperform rating on Coinbase shares, setting a price target of $310, which reflects a potential upside of around 30% from the current $240 price.

Investment bank KBW also forecasts that S&P 500 passive funds will need to buy up 36 million Coinbase shares to include the company in the index, which represents about four days’ worth of average trading volume.

KBW further pointed out that as of April 30, approximately 9.9 million Coinbase shares were short, amounting to 1.4 days’ worth of shares that would need to be covered.

Historically, companies added to the S&P 500 since 2017 have outperformed by an average of 5.2% the day following the announcement, and Coinbase’s addition to the index could set a precedent for more cryptocurrency companies to be included in the future.