The Securities and Exchange Commission (SEC) is expected to initiate enforcement action against the cryptocurrency exchange Coinbase soon, which may cast a shadow upon the company’s revenue streams. According to a recent research report by Berenberg, the SEC’s enforcement action is likely to resemble those taken against rival exchanges Bittrex and Kraken. Berenberg has initiated coverage of COIN with a hold rating and a price target of $55.
It is estimated that at least 37% of Coinbase’s first quarter net revenue, or roughly $276 million, stemmed from transaction fees and spreads related to crypto tokens other than bitcoin. These revenues could be targeted by the SEC, as well as those generated from staking services. Analyst Mark Palmer noted that interest income from USD Coin and custody operations might also be affected by the SEC’s forthcoming enforcement action.
The potential impact on Coinbase’s revenues presents a challenge: an estimated 86% of the company’s net revenue for the 12 months ended March 31 came from its US operations. A successful pivot away from the US market, therefore, could be an arduous task.
However, Berenberg also warned against shorting Coinbase shares, as 23% of its free float is already sold short. Shorting is a risky trading strategy that involves betting on a price decline by borrowing a security and selling it, with the hope of repurchasing the security at a lower price and returning it to the lender. Citi, a Wall Street behemoth, downgraded Coinbase to a neutral rating this month and reduced its price target for the crypto exchange to $65 from $80, citing regulatory uncertainty.
The predicted enforcement action against Coinbase highlights the broader issue of regulatory scrutiny on the cryptocurrency industry. While there are compelling arguments for the advantages of blockchain technology, such as enhanced security and transparency, regulators may take a more cautious approach to protect investors and maintain financial stability. As both positive and negative aspects of the technology evolve, it remains to be seen how the crypto world will adapt to the changing regulatory landscape.
In summary, the upcoming SEC enforcement action against Coinbase could have significant implications for the company’s revenues and its attempts to shift its focus away from the US market. This development raises questions about the sustainability of cryptocurrency exchanges and the willingness of regulators to work with innovators in this rapidly growing sector.
Source: Coindesk
