Moody’s, the credit ratings agency, has revised its assessment of Coinbase, shifting its rating from “stable” to “negative” in response to the recent legal action taken by the SEC against the cryptocurrency exchange. The SEC alleges that Coinbase operated as an unregistered securities broker.
In a statement released on June 8, Moody’s explained that the downgrade was prompted by apprehensions regarding the potential repercussions of the SEC’s actions on this cryptocurrency exchange platform’s daily business activities.
The change in outlook to negative from stable reflects the uncertain magnitude of impact the SEC’s charges will have on Coinbase’s business model and cash flows
While Moody’s downgraded Coinbase, the credit ratings agency acknowledged that the company still possesses a robust liquidity position. Moody’s expressed a positive view of this exchange platform $5 billion in cash and equivalents in comparison to its $3.4 billion long-term debt.
Additionally, Moody’s highlighted Coinbase’s track record of effectively managing expenses, which has helped offset decreases in transaction revenue in previous instances. The rating agency anticipates that Coinbase will continue prioritizing expense management going forward.
Moody’s was not the only entity that adjusted its assessment of Coinbase. Berenberg Capital, a financial services firm, maintained its “hold” rating for its clients but reduced the price target for COIN shares from $55 to $39.
Mark Palmer’s Evaluation on Coinbase’s Challenges
Mark Palmer, a research analyst at Berenberg, provided comments explaining the rationale behind the lowered price target. Palmer stated that the revision reflects their belief that this platform may experience further declines in Q2 trading volumes, which were already weak, as a result of the SEC’s charges.
He further noted that due to the potentially significant impact of the lawsuit’s outcome on their operations in the United States, they anticipate some investors reducing their exposure to the platform.
Furthermore, Palmer highlighted that the SEC’s “desired remedy” would necessitate the complete cessation of Coinbase’s primary business activities, specifically its staking services. Consequently, Palmer advised investors to refrain from making any immediate investments in these platform shares.
According to Palmer, “We consider COIN shares as uninvestable in the short term.” However, despite these concerns, Cathie Wood, the CEO of ARK Invest, appears less apprehensive. In an interview with Bloomberg, Wood expressed her belief that the escalating regulatory scrutiny faced by Binance, a competitor of Coinbase, would ultimately benefit the latter in the long term.
As of the time this information was published, ARK Invest, led by Cathie Wood, remained the fourth-largest holder of this platform shares globally, and there were no indications of the firm relinquishing that position in the near future. On June 7, ARK Invest acquired an additional $21.6 million worth of COIN shares.
According to data from Google Finance, the value of Coinbase shares has declined by 15.7% since the start of the week, with the current trading price per share standing at $54.90.
