Moody’s Downgrades Coinbase Citing ‘Uncertain Magnitude’ of SEC Charges

Credit rating agency Moody’s has downgraded its rating on Coinbase to “negative” from “stable”, following SEC legal action against the crypto exchange for allegedly operating as an unregistered securities broker.

in june 8 statementMoody’s said the downgrade was due to concerns about the impact of the SEC’s action on Coinbase’s day-to-day operations.

“The change in outlook from stable to negative reflects the uncertain magnitude of the impact the SEC charges could have on Coinbase’s business model and cash flows.”

Despite the downgrade, Moody’s noted that Coinbase maintains a “strong” liquidity position. The ratings agency viewed the company’s $5 billion in cash and equivalents compared favorably to its $3.4 billion in long-term debt.

Moody’s: Outlook on Coinbase from Stable to Negative.

– Breaking Market News (@financialjuice) June 8, 2023

The firm said it expects Coinbase to maintain its “focus on expense management,” which has successfully mitigated declines in transaction revenue in the past.

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Moody’s was not alone in adjusting its outlook on Coinbase. While financial services firm Berenberg Capital reiterated its pre-existing “Hold” rating for its clients, it lowered its price target for COIN shares from $55 to $39.

In emailed comments to Cointelegraph, Berenberg research analyst Mark Palmer explained that the price target reduction reflects his view that Coinbase could see its already weak Q2 trading volumes “continue and intensify” as a result of the SEC allegations. :

“Given the potentially significant impact of the litigation outcome on COIN’s US operations, we would expect some investors to reduce their exposure to its platform.”

Additionally, Palmer noted that the SEC’s “desired remedy” would require the complete shutdown of COIN’s core business practices, namely its staking services. Therefore, Palmer advised that investors should refrain from pursuing any further investments in Coinbase shares in the short term.

“We view COIN shares as undervalued in the near term.”

While Palmer says Coinbase isn’t a worthy investment, Cathy Wood, CEO of ARK Invest, isn’t too concerned. In an interview with Bloomberg, Wood said that the increased regulatory scrutiny of competing crypto exchange Binance was ultimately a good thing for Coinbase in the long run.

“They are very different.”

Arch Invest CEO Cathy Wood Says SEC Finds Allegations Against Coinbase and Binance False pic.twitter.com/icbeIuLs1C

— Bloomberg Markets (@markets) June 8, 2023

At the time of publication, Wood’s ARK Invest is the world’s fourth largest holder of Coinbase shares and shows no signs of relinquishing that title anytime soon. On June 7, the investment firm purchased an additional $21.6 million worth of COIN shares.

Coinbase shares are down 15.7% since the start of the week, and are currently changing hands for $54.90, according to statistics From Google Finance.

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