Cryptocurrency exchange Coinbase will not escape the profitability challenges it will face from the cryptocurrency market downturn, despite having a strong brand name and credibility in the cryptocurrency market, according to investment analysts.
Credit ratings firm Moody's published a note on Coinbase on Jan. 19 discussing the downgrade of Coinbase's corporate family and senior debt (CFR) rating, a rating assigned to reflect opinion about a company's ability to meet your financial obligations.
Coinbase's CFR and senior debt were downgraded to B2 and B1 from Ba3 and Ba2 respectively, indicating the company is "non-investment grade" and "speculative and subject to high credit risk" according to Moody's.
The firm noted that Coinbase is suffering from โsubstantially weakened cash flow and revenue generationโ due to โchallenging conditions,โ specifically depressed crypto prices and lower trading activity.
Market conditions saw Coinbase lay off 20% of their employeesabout 950 people, on January 10, its second wave of recent major layoffs after June 2022 18% staff reduction in an attempt to reduce cos
However, despite Coinbase's bid to preserve liquidity, Moody's still expected that "the company's profitability would remain in question."
The bankruptcy of its crypto exchange peer, FTX, is a cause of great concern and uncertainty regarding crypto regulation according to Moody's.
He said that a sudden move by regulators in the crypto industry could negatively affect Coinbase's revenue through higher regulatory compliance costs.
Moody's added, however, that increased oversight "could ultimately favor relatively more mature and compliant crypto asset platforms such as Coinbase."
Meanwhile, a separate note from JPMorgan analysts argued that Coinbase's credibility and reputation in the industry have been strengthened after recent crashes.
โWhile the crypto ecosystem has suffered from more significant credibility issues, Coinbase has emerged with its credibility and brand strengthened, at least relatively.โ
Analysts at the financial firm who maintained a โneutralโ rating for Coinbase in their latest note said that Coinbase could even be a โbeneficiary of the challengesโ other exchanges have faced in the wake of FTX.
The next Shanghai Hard Fork for the Ethereum blockchain could also be positive for the exchange according to JPMorgan analysts.
Related: Coinbase Halts Operations in Japan Amid Trade Slump
The upgrade โcould usher in a new era of staking at Coinbaseโ with analysts estimating that 95% of retail investors on the platform can stake Ethereum after the upgrade, netting Coinbase as much as nearly $600. million a year.
On Jan. 6, Coinbase's share price hit an all-time low of $31.95 after more than a year of steady price declines according to Yahoo Finance. data. The day before, veteran investor and CEO of ARK Invest, Cathie Wood, was loaded with $5.7 million worth of Coinbase shares.
Since then, Coinbase's share price and other cryptocurrency-related companies have surged.
Coinbase gained 72.6% from the January 6 low and was trading above $55 at market close on January 20, where it saw an 11.6% gain on the day.
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