Coinbase Global Inc. shares were likely to continue their decline Friday after another analyst downgraded the stock in the wake of a warning notice from the Securities and Exchange Commission.
TD Cowen analyst Stephen Glagola wrote Friday that it seems as if “multiple prongs of COIN’s business are increasingly under threat of potential SEC enforcement action” after the cryptocurrency exchange disclosed late Wednesday that it received a Wells Notice from the agency. A Wells Notice often presages an enforcement action, but not always.
“COIN appears headed for litigation against the SEC, which we expect to create an overhang on shares,” Glagola said, as he downgraded Coinbase’s stock
COIN,
to underperform from market perform.
Shares of Coinbase were off about 4% in morning trading Friday after declining 14% in Thursday’s session, the first day of trading following Coinbase’s disclosure of the Wells Notice.
“To the extent listed crypto assets are deemed securities, it could exacerbate trading volume deterioration,” Glagola wrote, adding that he sees “risk to a material portion” of Coinbase’s trading volumes outside of bitcoin
BTCUSD,
and ethereum
ETHUSD,
Also see: SEC charges Lindsay Lohan and other celebrities with illegally touting crypto tokens
He also sees a regulatory threat to Coinbase’s staking business. After Kraken settled with the SEC over its staking business, “it now appears COIN is not in the clear from SEC enforcement action” regarding its own activity in the staking space.
“Blockchain rewards revenue (a component of subscription & services revenue) is comprised primarily of delegated proof of stake revenue, representing 8.7% of COIN’s 2022 net revenue,” he noted.
Glagola’s downgrade follows one from Oppenheimer’s Owen Lau a day earlier. Lau lowered his rating on the stock to perform from outperform in a Thursday note to clients, writing that he was “increasingly worried about the fairness of the enforcement actions, and the ability for the ecosystem to grow with seemingly limited and shrinking support from the banking system in the US.”
Coinbase shares are up 83% so far this year, as the S&P 500
SPX,
has inched up 2%.
