Moody’s downgrades Coinbase citing ‘uncertain magnitude’ of SEC charges


Credit rating agency Moody's downgraded its rating on Coinbase to "negative" from "stable" following the The SEC's legal action against the crypto exchange for allegedly operating as an unregistered securities broker.

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

"The outlook change to negative from stable reflects the uncertain magnitude of the impact the SEC charges will 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 favorably compared with its $3.4 billion in long-term debt.

The firm added that it expects Coinbase to maintain its “spend management focus” that has successfully mitigated declining transaction revenue in the past.

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Moodys was not the only one to adjust its view on Coinbase. While financial services firm Berenberg Capital reiterated its pre-existing "hold" rating on its clients, it cut its price target on COIN shares from $55 to $39.

In emailed comments to Cointelegraph, Berenberg research analyst Mark Palmer explained that the reduction in the price target reflects his view that Coinbase could see its already weak second-quarter trade volumes “persist.” and intensify" as a result of the SEC's charges, explaining:

"Given the potentially significant impact of the lawsuit outcome on US COIN trading, we would expect some investors to reduce their exposure to its platform."

Furthermore, Palmer noted that the SEC's "desired remedy" would require the complete winding up of COIN's core business practices, namely its staking services. As such, Palmer advised that investors should refrain from making any short-term investments in Coinbase shares.

"We believe that COIN shares cannot be invested in the short term."

While Palmer says Coinbase cannot be invested, ARK Invest CEO Cathie Wood doesn't seem overly concerned. In an interview with Bloomberg, Wood said that she increasing regulatory scrutiny from competing cryptocurrency exchange Binance was ultimately a good thing for Coinbase in the long run.

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

Coinbase shares have plunged 15.7% since the start of the week and are currently changing hands at $54.90 each, according to data from Google Finance.

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