Coinbase’s decreased revenue and cash flow production potential as a result of the prolonged crypto winter were listed as reasons for the downgrade by the ratings agency. The company was downgraded by S&P earlier this month.
Moody’s has cut Coinbase’s (COIN) long-term credit rating as well as its guaranteed senior unsecured notes, citing “significantly weakened revenue and cash flow generation capabilities.”
Coinbase’s corporate family rating (CFR), a long-term rating that reflects the relative likelihood of a business family’s debt defaulting, has been reduced from Ba3 to B2, both of which are considered non-investment grades. According to the firm, guaranteed senior unsecured notes were downgraded from B1 to Ba2.
“The rating action reflects Coinbase’s significantly decreased revenue and cash flow generation potential as a result of the tough crypto asset operating environment typified by rapid falls in crypto asset values and lower client trading activity,” Moody’s said. “Moody’s anticipates the company’s profitability to remain difficult despite its [Jan. 10] announcement of a 950-person reduction in its global workforce.”
Moody’s also cited the aftermath from the FTX exchange’s collapse and the potential regulatory tightening on the crypto industry as a cause for Coinbase’s revenue outlook being negative.
“Although enhanced regulatory scrutiny may eventually favour the relatively more established and compliant crypto asset platforms like Coinbase,” Moody’s stated, “the route to adjustments and enhancements in the regulatory framework is highly unknown and may prove disruptive to crypto market participants.”
S&P Global Ratings, the world’s largest rating agency, lowered Coinbase’s long-term credit rating and senior unsecured debt rating earlier this month for identical reasons.
Coinbase shares fell 86% in 2022, in part because trading volume for cryptocurrencies, which remains Coinbase’s major revenue stream, stalled as crypto values fell dramatically during the year, and crypto firms such as Three Arrows Capital, Celsius Network, and FTX went bankrupt.
Despite repeated stock downgrades since December, COIN has recovered thus far in 2023 and is now trading 60% higher year to far, mirroring a pattern witnessed in most cryptocurrencies this month. Coinbase’s stock was up over 11% on Friday.