Moody’s Downgrades Coinbase Credit Rating as SEC Lawsuit Looms

Summary
Moody's has downgraded the creditworthiness of crypto exchange Coinbase from "stable" to "negative" due to the SEC suing the company for allegedly behaving as an unregistered securities broker. Berenberg Capital also has reduced its price target for COIN shares from $55 to $39 and suggested that potential investors wait.

Moody’s has downgraded the creditworthiness of crypto exchange Coinbase from “stable” to “negative” because the SEC is suing the company for allegedly behaving as an unregistered securities broker. Moody’s justified the downgrade on June 8 by expressing concern about the impact of the SEC action on Coinbase’s operations.

Even after the downgrading, Moody’s still considered Coinbase to have a “strong” liquidity position. The company’s $3.4 billion in long-term debt and $5 billion in cash and equivalents were both impressive to the credit rating agency.

Another Credit Agency Agrees

Coinbase claims it would “focus on expense management” in the future to make up for any declines in transaction income. When it comes to Coinbase, it wasn’t only Moody’s that flipped. While maintaining its “hold” rating, Berenberg Capital has reduced its price target for COIN shares from $55 to $39.

The firm has lowered its price objective for Coinbase because analyst believe the company’s already disappointing Q2 trading volumes might “persist and intensify” as a result of the SEC’s claims.

Investors Suggested to Wait

Some investors may seek to limit their COIN exposure if the outcome of the case is still unclear. Palmer also brought up the fact that the SEC’s “desired remedy” calls for COIN’s primary commercial activities—its staking services—to be terminated. Since this moment is not right for investing in Coinbase, Palmer has suggested that potential investors wait.

Cathie Wood, CEO of ARK Invest, did not seem overly concerned by Palmer’s forecasts for Coinbase and its future potential. In an interview with Bloomberg, Wood said that Coinbase might benefit from more regulation of Binance, one of its rivals in the cryptocurrency exchange market. 

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