Moody’s has recently downgraded Coinbase’s rating from “stable” to “negative”. This decision came as a response to the Securities and Exchange Commission’s (SEC) legal proceedings against Coinbase, accusing it of operating as an unauthorized securities broker.
Moody’s announcement on June 8 clarified that the downgrade reflects their apprehension about the SEC’s charges’ potential impact on Coinbase’s regular operations. They noted the “uncertain magnitude” of how these charges could influence the company’s business model and cash flows.
However, despite the negative outlook, Moody’s commended Coinbase’s robust liquidity. The agency highlighted the company’s $5 billion cash and equivalents as favorable, especially considering its $3.4 billion long-term debt. Furthermore, Moody’s anticipates that Coinbase will continue to manage its expenses efficiently, which has previously mitigated transaction revenue declines.
This revised outlook on Coinbase isn’t exclusive to Moody’s. Berenberg Capital, a financial services firm, also adjusted its stance, retaining its “hold” rating but reducing the price target for COIN shares from $55 to $39. Berenberg’s Mark Palmer explained that the price target cut is reflective of their perspective that Coinbase’s Q2 trading volumes, already weak, might “persist and intensify” due to the SEC’s charges.
Palmer pointed out the SEC’s desired outcome could necessitate an entire restructure of COIN’s primary business activities, such as its staking services. Consequently, he suggested investors refrain from short-term investment in Coinbase shares, labeling them “uninvestable in the near term”.
Despite the negativity, ARK Invest CEO Cathie Wood doesn’t appear overly concerned. She expressed to Bloomberg that the escalating regulatory examination of rival crypto exchange Binance could be advantageous for Coinbase over time.
