Coinbase Downgraded Amidst Regulatory Challenges

Coinbase Downgraded Amidst Regulatory Challenges

Analyst Patrick Moley from Piper Sandler has downgraded Coinbase, citing the ongoing legal disputes with the Securities and Exchange Commission (SEC) and the lack of clarity in cryptocurrency regulation in the United States. The downgrade was prompted by the regulatory uncertainties that make it difficult to predict Coinbase's future revenues accurately. Moley has changed his rating for the largest crypto exchange in the U.S. from 'overweight' to 'neutral,' as reported by BNN Bloomberg. Moley expects that Coinbase's quarterly trading volumes and monthly transacting user totals for the second quarter will reach the lowest levels in over two years. Despite the recent rise in cryptocurrency prices, Coinbase has not seen a proportional increase in trading volumes in recent quarters. Moley also mentioned the unpredictable timing of the approval of a spot Bitcoin exchange-traded fund (ETF). However, Moley acknowledges the potential for Coinbase to remain a significant player in the crypto industry if regulatory clarity is achieved. He believes that the company's prospects depend on resolving the regulatory challenges it faces. Moody's, another rating agency, previously downgraded Coinbase to 'negative' from 'stable' in June, despite acknowledging its healthy liquidity position and improvements in cash flow generation resulting from prudent expense management. Moody's noted that the SEC charges against Coinbase only pertain to certain products and exclude its leading traded products. Despite the SEC's lawsuit, Coinbase has experienced a steady increase in market share, reaching a peak of 64% in June. This growth in market dominance has coincided with the SEC charges alleging violations of federal securities laws. Notwithstanding the concerns raised by the SEC's lawsuits, traditional financial institutions have continued to partner with Coinbase. Companies like BlackRock, Fidelity, and ARK Investments have chosen Coinbase as their surveillance-sharing partner for spot-Bitcoin exchange-traded fund (ETF) filings. Although the future revenue earnings of Coinbase remain uncertain, the resubmission of several spot Bitcoin ETF applications, which explicitly state an intention to engage in surveillance-sharing agreements with Coinbase, demonstrates continued confidence in the cryptocurrency exchange. Coinbase's ability to navigate the regulatory landscape and establish regulatory clarity will be crucial for its future success. The outcome of the ongoing legal proceedings and the evolving cryptocurrency regulatory environment will significantly impact the company's position in the market.

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