Moody’s downgrades Coinbase amid SEC lawsuit

Moody’s, the international credit ratings agency, has revised its outlook on Coinbase, the cryptocurrency exchange, from “stable” to “negative.”

This decision comes after the U.S. Securities and Exchange Commission’s (SEC) lawsuit against Coinbase for allegedly functioning as an unregistered securities broker.

Moody’s expressed concerns about the potential impact of the SEC’s charges on Coinbase’s daily operations. The agency highlighted that the shift in outlook to negative from stable mirrors the uncertain extent of the SEC’s charges’ effect on Coinbase’s business model and cash flows.

Despite the downgrade, Moody’s acknowledged that Coinbase still holds a “strong” liquidity position.

The rating agency commended the company’s $5 billion in cash and equivalents, which stands against its $3.4 billion in long-term debt. Moody’s anticipates that Coinbase will continue its “focus on expense management,” a strategy that has previously helped offset decreases in transaction revenue.

In addition to Moody’s, Berenberg Capital, a financial services firm, also adjusted its perspective on Coinbase.

While maintaining its “hold” rating for its clients, Berenberg Capital reduced its price target for Coinbase shares from $55 to $39. Berenberg’s research analyst, Mark Palmer, explained that this reduction reflects their belief that Coinbase’s already weak Q2 trading volumes could “persist and intensify” due to the SEC’s charges.

Palmer further noted that the SEC’s “desired remedy” would necessitate completely ceasing Coinbase’s core business practices, mainly its staking services. Consequently, Palmer advised investors to refrain from investing in Coinbase shares in the short term, describing them as “uninvestable.”

Despite these concerns, ARK Invest CEO Cathie Wood remains optimistic. In a recent interview, Wood suggested that the increasing regulatory scrutiny of leading competitor crypto 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 relinquishing that position. On June 7, the investment firm purchased an additional $21.6 million worth of Coinbase shares.

Coinbase shares have dropped 15.7% since the start of the week and are currently trading at $54.90 per share, according to data from Google Finance.