Moody’s, the renowned credit ratings agency, has recently downgraded Coinbase’s rating from “stable” to “negative” due to the legal action taken by the Securities and Exchange Commission (SEC) against the popular crypto exchange. The SEC alleges that Coinbase has been operating as an unregistered securities broker. Moody’s expressed concerns about how this regulatory action will impact Coinbase’s day-to-day operations, leading to a change in outlook.
The rating agency emphasized that Coinbase maintains a strong liquidity position despite the downgrade. Moody’s positively evaluated the company’s $5 billion in cash and equivalents, compared to its $3.4 billion in long-term debt. They also expect Coinbase to continue its successful expense management strategy, which has effectively mitigated declines in transaction revenue in the past.
Moody’s was not the only organization to adjust its outlook on Coinbase. Berenberg Capital, a financial services firm, maintained its “hold” rating for its clients but reduced the price target for COIN shares from $55 to $39. According to Mark Palmer, a research analyst at Berenberg, this reduction reflects their belief that the SEC’s charges could lead to persistent and intensified declines in Coinbase’s Q2 trading volumes. He explained that investors may reduce their exposure to Coinbase’s platform due to the potential impact of the lawsuit’s outcome on the company’s U.S. operations.
Palmer further highlighted that the SEC’s desired remedy would involve the complete wind-down of Coinbase’s core business practices, particularly its staking services. Consequently, he advised investors to refrain from investing in Coinbase shares in the short term, deeming them “uninvestable.”
While Palmer expresses caution, Cathie Wood, the CEO of ARK Invest, holds a more optimistic perspective. In an interview with Bloomberg, Wood stated that the increased regulatory scrutiny faced by Coinbase’s competitor, Binance, would ultimately benefit Coinbase in the long run. Notably, ARK Invest is currently the fourth-largest holder of Coinbase shares worldwide and recently purchased an additional $21.6 million worth of COIN shares.
Since the beginning of the week, Coinbase shares have experienced a significant decline of 15.7%. Currently, they are being traded at approximately $54.90 per share, according to data from Google Finance. These developments reflect the ongoing challenges and uncertainties faced by Coinbase amidst the SEC’s legal action, prompting various stakeholders to reassess their outlook on the company’s prospects.
