Moody’s, the international credit rating agency, has revised its outlook on Coinbase, the cryptocurrency exchange, from “stable” to “negative”.
This decision follows a lawsuit filed by the US Securities and Exchange Commission (SEC) against Coinbase for allegedly operating as an unregistered securities broker.
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Moody’s she expressed Concerns about the potential impact of the SEC charges on Coinbase’s day-to-day operations. The agency highlighted that the shift in outlook to negative from stable reflects the uncertain extent of the impact of the SEC fee on Coinbase’s business model and cash flow.
Despite the downgrade, Moody’s acknowledged that Coinbase still maintains a “strong” liquidity position.
The rating agency commended the company’s $5 billion in cash and cash equivalents, which equals $3.4 billion in long-term debt. Moody’s predicts that Coinbase will continue its “focus on expense management,” a strategy that previously helped offset a decline in transaction revenue.
In addition to Moody’s, Berenberg Capital, a financial services firm, has adjusted its perspective on Coinbase.
While maintaining the “hold” rating for its clients, Berenberg Capital lowered its price target for Coinbase shares from $55 to $39. Berenberg Research Analyst Mark Palmer explained that the decline reflects their belief that Coinbase’s already weak trading volumes in the second quarter of the year could “continue and intensify” due to the SEC’s charges.
Ballmer further noted that the SEC’s “required remedy” would entail ceasing entirely Coinbase’s core business practices, particularly its staking services. Thus, Ballmer advised investors to refrain from investing in Coinbase shares in the short term, describing them as “uninvestable.”
Despite these concerns, Kathy Wood, CEO of ARK Invest, remains optimistic. In a recent interview, Wood suggested that increased regulatory scrutiny on leading rival cryptocurrency exchange Binance could ultimately benefit Coinbase in the long run.
As of now, Wood’s ARK Invest is the world’s fourth largest holder of Coinbase shares and shows no intention of giving up that position. On June 7, the investment firm purchased an additional $21.6 million worth of Coinbase shares.
Coinbase shares are down 15.7% since the start of the week and are currently trading at $54.90 a share, according to data from Google Finance.
