GAIN Capital Shares Stand Out as Analyst Overstates Potential of Bitcoin CFDs

The adoption of bitcoin-denominated CFDs has certainly lost traction ‎in the retail industry in the last few weeks. ‎

GAIN Capital (NYSE:GCAP) stock was the NYSE market’s star performer on Thursday – a Wall Street analyst raised its price targets as the retail brokerage began to offer crypto-based trading products. The listed company’s stock surged during the regular session to close up 26% at USD 9.85, the highest point since June 2015, and then jumped another 15% in after-hours trading to hit USD 11.35.

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In a note to clients on Thursday, Mox Reports author Richard Pearson ‎raised his price target for the stock to at least USD 18-23. The analyst rates Gain Capital (NYSE: GCAP) a buy, saying he is positive on the firm ahead of launch of its crypto instruments, which could lift shares to triple from current levels.

Earlier this month, GAIN Capital became the latest group to launch Bitcoin trading, supporting new capabilities on its FCA regulated service, City Index.

Pearson ‎noted that majority of GAIN’s revenue comes via its UK-based entity, City Index, which should boost the group’s overall revenues. According to his analysis, crypto trading has not yet been rolled out in the US. As such, American investors are not fully aware of the impact and have not yet bid up the stock.

The company’s response seems to agree with some of the critical points raised in Pearson’s article.

Nevertheless, not all analysts will be convinced of the upside potential of trading volumes or the sustainability of revenue growth based only on Bitcoin-related instruments. Indeed, City Index operates within a highly-regulated environment where the British financial regulator has recently warned against exactly the products that the company plans to launch soon.

Specifically, the FCA has described CFDs on cryptocurrencies like Bitcoin as “extremely high-risk”. The watchdog expressed concern over the price volatility and value of cryptocurrencies, and therefore the value of CFDs. The FCA’s restrictive trading requirements could also make the product unattractive to many cryptocurrency traders. For example, they can only trade the upcoming instruments with a maximum leverage of 1:4.

In addition, the adoption of cryptocurrency-denominated CFDs has certainly lost traction in the retail industry in the last few weeks. The lineup of regulated brokers that has restricted trading on cryptocurrencies due to overexposure to its one-sided uptrend are growing bigger. Among the latest entries into this group of brokers are XTB, IC Markets and Think Markets.

Based on these facts, crypto derivatives may get a muted reception after their debut on City Index’s platform, as warnings about the risks of Bitcoin offerings sounded ever louder.

If these assumptions proved to be true, it would leave today’s advance out for further explanation, leading us to believe that the company’s counterpoints to Mox Reports are insufficient.

Concerning the creditability of Mr. Pearson, a complaint was filed against him in a New York court earlier this year, alleging that he publicly published false statements about a manufacturing company to drive its stock price down, while he was taking short position in its stock to gain a financial windfall.

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