Coinbase (COIN) Stock Ratings Slashed by Moody’s After SEC Actions

Coinbase share price plummeted on the day of charges announced, before the quick recovery.
Currently, COIN share price trading at 54.90 USD, jumped 14% from the drop after the charges.

The sudden move of the United States Securities and Exchange Commission (SEC) charging Coinbase Global (NASDAQ: COIN) came as nothing short of a surprise. The regulatory action was expected, given the indications through its previous actions. On the day of enforcement action against the leading crypto exchange in the US, the stock price nosedived in the pre-market. Now, the company stock ratings are also getting downgraded.

Prominent credit rating and research firm, Moody’s, changed the stock rating and outlook for COIN stock. The decline in rating and outlook came in the wake of a recent instance when the SEC charged Coinbase, the agency noted in its statement on Thursday, June 8.

Moody’s gave the B2 corporate family rating and B1 guaranteed senior unsecured notes’ ratings to Coinbase. The outlook for the company, in addition, was also degraded from stable to negative.

In its statement, the rating agency asserted the charges against the crypto exchange by the US regulator accusing it of operating as an “unregistered securities broker, national securities exchange, and clearing agency.” It also charged the crypto firm for not registering its crypto staking-as-a-service program for offer and sale.

Not Everything Against Coinbase

However, the remarks from the agency about the crypto firm gives more clarity on the scenario and potential outlook.

“The affirmation of Coinbase’s ratings reflects its healthy liquidity position, its recent cash flow generation improvements stemming from prudent expense management, and because the SEC’s charges pertain only to some of Coinbase’s products, and exclude its leading traded products.

According to the agency, the negative outlook from stable for the company indicates towards the “uncertain magnitude” of the regulatory charges from the financial regulator’s efficacies on the business model and cash flows.

Core Businesses Remains Unharmed

In contrast to the downgrade in rating and outlook, the rating agency still shows optimism towards Coinbase. It highlighted the strong liquidity of the crypto company—5 Billion USD worth cash and cash equivalents, and also, the company’s long-term debt accounts for 3.4 Billion USD.

Coinbase is expected to take care of its “expense management” which helped the company from navigating through the odds like the transaction revenue decline. The SEC complaint did not include the core income stream for the company, given Bitcoin (BTC) and Ethereum (ETH) trading, which accounts for 20% and 13% of the total revenue, according to Moody’s report. Similarly, about 28% of it comes from the other cryptocurrencies trading activities.

Non-transaction revenue also drives a significant revenue for the company. For instance, interest income generates 20% of its revenue. Also, the list of cryptocurrencies SEC called securities did not have Bitcoin and Ethereum. It secures the two leading trading products for the company, unharmed.

Several other rating agencies were also seen to make the corrections in outlook and ratings. Bernerg Capital, a prominent financial services firm, kept the stock rating for COIN stock to “hold” while cutting down the targeted share price from 55 USD to 39 USD.

Despite COIN stock price dwindling amid the uncertainties, ARK Invest CEO, Cathie Wood, took the opportunity to fill up the bags again. Currently, the investor is the fourth-biggest Coinbase shares holder. Her last buy on June 7 reportedly accounts for 21.6 Million USD worth COIN shares.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing