Key Takeaways

• Coinbase was issued with a Wells discover this week and now awaits formal fees from the SEC
• Regulators proceed to maneuver in on US crypto corporations, hurting Coinbase’s prospects
• The trade laid off its second spherical of workers in January, shut down actions in Japan attributable to “market circumstances”, and noticed its share worth plummet all through 2022

Coinbase simply can’t catch a break. 

I wrote a deep dive on the struggling crypto trade final October, when founder and CEO Brian Armstrong offered 2% of its stake. However issues have solely gotten worse since then. 

It laid off 20% of its employees in January (I analysed what this meant for the corporate right here), six months after it had already reduce 18%. It additionally terminated its Japanese operations in January, citing “market circumstances”. 

Regardless of this, the inventory had been rebounding in 2023 as a softer forecast of the long run path of rates of interest was benefitting the tech sector at massive. After which, the SEC waded in to finish the celebration this week. 

1/ At the moment Coinbase obtained a Wells discover from the SEC targeted on staking and asset listings. A Wells discover usually precedes an enforcement motion.

— Brian Armstrong (@brian_armstrong) March 22, 2023

SEC alleges Coinbase is violating securities legislation

The SEC issued Coinbase a Wells discover, warning that it was doubtlessly violating US securities legislation. The share worth has fallen 24% within the two days since.  

“Based mostly on discussions with the Workers, the Firm believes these potential enforcement actions would relate to features of the Firm’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Pockets,” Coinbase mentioned in a regulatory submitting. “The potential civil motion might search injunctive aid, disgorgement, and civil penalties.”

The market now awaits the precise fees becuase a Wells discover, as Armstrong famous in his tweet above, usually precedes authorized motion. 

Coinbase chief authorized officer Paul Grewal additionally waded in, noting that Coinbase was assured within the face of the fees. 

“Though we don’t take this improvement frivolously, we’re very assured in the way in which we run our enterprise – the identical enterprise we offered to the SEC to ensure that us to develop into a public firm in 2021,” he posted. 

Regulatory surroundings continues to worsen for crypto

Regardless of Coinbase’s defiance, not less than in public, the fact is that this marks simply the most recent transfer by US regulators to clamp down on crypto. 

Latest months have seen the dramatic shutdown of the Binance-branded stablecoin BUSD, a high 10 cryptocurrency, a nice for main trade Kraken regarding disclosures round its staking downside, and now this Wells discover for Coinbase. 

Then there may be the banking turmoil. Whereas not attributable to crypto, the shutdown of SVB, Silvergate and Signature means the principle crypto banks have evaporated into skinny air. That starves the trade of significant fiat on-ramp and is an unquestioned headwind going ahead. 

Whether or not you view any of the above as unfair or not, the underside line for Coinbase is that the nation through which it’s headquartered, the US, is a considerably extra hostile surroundings for the crypto trade than it was just a few months in the past. That’s clearly unhealthy information for buyers, and for the enterprise as a complete. 

What occurs subsequent?

Going ahead, it’s exhausting to know what is going to occur. It does seem, nevertheless, as if regulators are intent to rein crypto in after the collection of scandals that shook the market (and prompted billions of losses for patrons) final 12 months, together with LUNA, Celsius and most not too long ago FTX. 

Earlier than this newest transfer, the Coinbase share worth had been reaping the positivity round a bounceback for Bitcoin, which is presently buying and selling at $28,000, practically double what it was within the aftermath of the FTX collapse in November. 

That follows the broader tech resurgence, because the market is betting that the Federal Reserve is essentially accomplished with rate of interest hikes and the uber-tight financial coverage of the final 12 months. 

Finally, Coinbase’s destiny shall be tied to these macro circumstances, in addition to the Bitcoin worth, because it all the time is. However so too will it rely upon regulators pulling again from their punitive stance over the previous few months, and proper now that doesn’t seem seemingly.