COIN: Coinbase Could be in Trouble if SEC Orders Potential Securities to be Delisted
- Coinbase was issued with a formal notice by the SEC last week, warning that it intends to take action.
- If certain assets listed by Coinbase are considered securities, it threatens to compromise its revenue stream.
- Cathie Wood’s Ark Invest fund also sold Coinbase shares for the first time this year.
As the largest crypto exchange in the US, Coinbase is representative of a large portion of crypto trading in the US. Amid the crypto bull run seen near the end of 2021, the share price of Coinbase soared. But much like many other companies within the industry, the bear market of 2022 took a toll on its shares. Over the past year, Coinbase stock has fallen by 63%. The exchange giant however, has another problem at the moment – and it could prove even more problematic than falling crypto prices.
What happened?
On Wednesday, Coinbase announced that it had been issued with what’s known as a Wells notice – a formal warning from the Securities and Exchange Commission (SEC) that they are likely to take action against them. The day prior, Cathie Wood’s Ark Invest fund moved to sell its shares in the exchange giant (the amount of which constitutes 9% of all Coinbase shares in existence), in the fund’s first sale of Coinbase shares this year. Both of these events likely contributed to the 14% COIN saw on Thursday.
The securities issue
The concerns for Coinbase however are more deep rooted than a share price drop. The issue is that if it is legally forced to delist assets which the SEC deems to be securities, it could have a significant impact on its revenue streams. As Coinbase generates its revenue through trading fees, the fewer tokens it is allowed to list, the less income it will generate from fees. Analysts have suggested that as much as 56% of Coinbase’s trading volume is facilitated by tokens which are at least at “medium” risk of being ruled securities.