Ark Invest CEO Cathie Wood bought more Coinbase (COIN -3.24%) stock after a recent pullback. Ark purchased new shares worth roughly $21.6 million on June 6 for three of its exchange-traded funds (ETFs). 

The big purchases came on the same day that the Securities and Exchange Commission (SEC) triggered big sell-offs for the stock by announcing it had filed a suit against Coinbase for operating as an unregistered trading exchange.

The SEC lawsuit could shake up the crypto world. However, Wood's recent buying move suggests she doesn't see the pending legal issues disrupting Coinbase's operations. 

Wood sees the pullback for Coinbase as an opportunity

In the day of trading that followed the announcement of the SEC suit, Coinbase stock dipped roughly 12%. In response, Wood wound up buying shares at the market-close price. The company's share price saw some recovery momentum in the next day of trading, but its stock is still down roughly 15% since the beginning of this month.

Even in the face of potential regulatory issues, it's clear Ark is bullish on Coinbase.

Coinbase is the sixth-largest portfolio holding in Wood's Ark Innovation ETF and accounts for roughly 5.8% of the fund's total weight. Meanwhile, it ranks as the fourth-largest position in the Ark Next Generation Internet ETF, accounting for 7% of holdings. It's also the third-largest position in the Ark Fintech Innovation ETF -- accounting for 8.4% of the total fund portfolio.

At the root of the issue is whether cryptocurrencies that have been traded on the company's platform can reasonably be classified as securities. Whether cryptocurrency staking services represent security-like offerings or otherwise bring these financial vehicles under the purview of existing financial regulations is also a key matter of contention.  

Regulatory developments are a wild card

While the cryptocurrency market has expanded at an exponential clip since its inception, the regulatory framework in the space has never been well defined. As a leading cryptocurrency exchange platform, new legislative and case-law developments could have a disruptive impact on Coinbase's business. The company has been charged by the SEC with a series of securities violations, including operating as an unregistered securities exchange, broker, and clearing agency -- and it's not yet clear what this means for the business. 

But Wood thinks there's a catch. The SEC also recently filed a series of securities violation charges against Binance -- one of Coinbase's key competitors. The Ark CEO sees the cases against Binance and Coinbase as being widely different and anticipates an opportunity to profit off of them being lumped in the same bucket. 

In an interview with Bloomberg TV, Wood said that two former Binance officials have been working with U.S. regulators to show that Binance U.S. was not a separate entity from Binance International, contrary to filings. Wood says the former officials have also been providing information about the extent to which Binance CEO Changpeng Zhao controlled the U.S. offshoot, how much data was shared with China, and whether there was illegal comingling of funds.

Ultimately, Wood sees the case against Binance as being much more serious. As a result, she expects evolving legal developments will actually be a net positive for Coinbase, because as its key competitor, it faces greater headwinds. 

Should investors follow Wood into Coinbase stock?

The $21.6 million in Coinbase stock that Wood purchased for her company's ETFs doesn't look huge in terms of the total amount of managed under these funds. But it represents another vote of confidence in the stock at a time when bearish sentiment has seen an uptick.

Wood has been steadily building Ark's position in Coinbase this year. It's clear she has high conviction in the bull case. 

But investors should weigh their own risk tolerance, portfolio goals, and outlook for the stock before treating Wood's recent endorsement as a clear-cut buying signal. Basing an investment thesis on how the SEC's cases will proceed is a risky proposition. These cases involve complex issues and may set new legal precedents, so it's very difficult to determine what the potential outcomes might be.