Coinbase stock falls again, what happens next for struggling exchange?

Key Takeaways

Coinbase was issued with a Wells discover this week and now awaits formal costs from the SEC
Regulators proceed to maneuver in on US crypto firms, hurting Coinbase’s prospects
The alternate laid off its second spherical of staff in January, shut down actions in Japan on account of “market situations”, and noticed its share worth plummet all through 2022

Coinbase simply can’t catch a break. 

I wrote a deep dive on the struggling crypto alternate final October, when founder and CEO Brian Armstrong offered 2% of its stake. However issues have solely gotten worse since then. 

It laid off 20% of its employees in January (I analysed what this meant for the corporate right here), six months after it had already minimize 18%. It additionally terminated its Japanese operations in January, citing “market situations”. 

Regardless of this, the inventory had been rebounding in 2023 as a softer forecast of the long run path of rates of interest was benefitting the tech sector at massive. After which, the SEC waded in to finish the celebration this week. 

1/ As we speak Coinbase acquired a Wells discover from the SEC centered on staking and asset listings. A Wells discover sometimes precedes an enforcement motion.

— Brian Armstrong (@brian_armstrong) March 22, 2023

SEC alleges Coinbase is violating securities regulation

The SEC issued Coinbase a Wells discover, warning that it was probably violating US securities regulation. The share worth has fallen 24% within the two days since.  

“Primarily based on discussions with the Workers, the Firm believes these potential enforcement actions would relate to points of the Firm’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Pockets,” Coinbase stated in a regulatory submitting. “The potential civil motion might search injunctive reduction, disgorgement, and civil penalties.”

The market now awaits the precise costs becuase a Wells discover, as Armstrong famous in his tweet above, sometimes precedes authorized motion. 

Coinbase chief authorized officer Paul Grewal additionally waded in, noting that Coinbase was assured within the face of the costs. 

“Though we don’t take this improvement calmly, we’re very assured in the way in which we run our enterprise – the identical enterprise we offered to the SEC to ensure that us to change into a public firm in 2021,” he posted. 

Regulatory atmosphere continues to worsen for crypto

Regardless of Coinbase’s defiance, a minimum of in public, the truth is that this marks simply the newest transfer by US regulators to clamp down on crypto. 

Latest months have seen the dramatic shutdown of the Binance-branded stablecoin BUSD, a high 10 cryptocurrency, a positive for main alternate Kraken regarding disclosures round its staking downside, and now this Wells discover for Coinbase. 

Then there’s the banking turmoil. Whereas not attributable to crypto, the shutdown of SVB, Silvergate and Signature means the principle crypto banks have evaporated into skinny air. That starves the business of significant fiat on-ramp and is an unquestioned headwind going ahead. 

Whether or not you view any of the above as unfair or not, the underside line for Coinbase is that the nation during which it’s headquartered, america, is a considerably extra hostile atmosphere for the crypto business than it was just a few months in the past. That’s clearly dangerous information for traders, and for the enterprise as an entire. 

What occurs subsequent?

Going ahead, it’s laborious to know what’s going to occur. It does seem, nonetheless, as if regulators are intent to rein crypto in after the sequence of scandals that shook the market (and brought about billions of losses for purchasers) final yr, together with LUNA, Celsius and most lately FTX. 

Earlier than this newest transfer, the Coinbase share worth had been reaping the positivity round a bounceback for Bitcoin, which is presently buying and selling at $28,000, almost double what it was within the aftermath of the FTX collapse in November. 

That follows the broader tech resurgence, because the market is betting that the Federal Reserve is basically achieved with rate of interest hikes and the uber-tight financial coverage of the final yr. 

Finally, Coinbase’s destiny will probably be tied to these macro situations, in addition to the Bitcoin worth, because it at all times is. However so too will it rely on regulators pulling again from their punitive stance over the previous couple of months, and proper now that doesn’t seem doubtless.