Credit ratings agency Moody’s has downgraded its rating of Coinbase from “stable” to “negative” following the SEC’s legal action against the crypto exchange for allegedly operating as an unregistered securities broker.
In a June 8 statement, Moody’s said the downgrade was due to concerns about the impact of the Securities and Exchange Commission action on Coinbase’s day-to-day operations.
“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.”
Despite the downgrade, Moody's noted that Coinbase maintains a “strong” liquidity position. The rating agency looked favorably on the company’s $5 billion in cash and equivalents compared to its $3.4 billion in long-term debt.
The firm added that it expects Coinbase to maintain its “focus on expense management” that has successfully mitigated declines in transaction revenue in the past.
Moodys wasn’t alone in adjusting its outlook on Coinbase. While financial services firm Berenberg Capital reiterated its pre-existing “hold” rating to its clients, it slashed its price target for 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 their view that Coinbase could see its already-weak Q2 trading volumes “persist and intensify” as a result of the SEC’s charges, explaining:
"Given the potentially significant impact of the lawsuit's outcome on COIN's U.S. operations, we would expect some investors to reduce their exposure to its platform."
Additionally, Palmer noted the SEC's “desired remedy” would require the complete wind-down of COIN's core business practices, namely its staking services. As such, Palmer advised that investors should hold off on pursuing any investment in Coinbase shares in the short term.
“We view COIN shares as uninvestable in the near term.”
While Palmer says Coinbase is uninvestable, ARK Invest CEO Cathie Wood doesn’t seem too worried. In an interview with Bloomberg, Wood said the increasing regulatory scrutiny of competitor crypto exchange Binance was ultimately a good thing for Coinbase in the long run.
At the time of publication, Wood’s ARK Invest is the world’s fourth-largest holder of Coinbase shares and it shows no sign of giving up that title anytime soon. On June 7, the investment firm purchased an additional $21.6 million worth of COIN shares.
Coinbase shares have plummeted 15.7% since the beginning of the week, and are currently changings hands for $54.90 apiece, according to data from Google Finance.