Is Coinbase Stock Still Worth A Look Following SEC Threats?

COIN: Coinbase Global logo
Coinbase Global

Cryptocurrency broker Coinbase stock (NASDAQ: COIN) has seen a big sell-off, declining by almost 17% over the last five trading days.  The recent decline comes after the company disclosed that the U.S. Securities and Exchange Commission (SEC) had sent it a Wells notice, which is typically one of the final steps before the commission formally issues charges. Although the notice itself was devoid of many specific details, Coinbase has indicated that it would likely relate to its company’s core trading operations, staking operations, institutional trading operations, and custody business. Although we don’t see a near-term impact on the company’s business, given that Coinbase could end up with potentially long-term litigation with the SEC, the company could see some valuable revenue streams diminish if the SEC were to more tightly regulate its business. The SEC has been cracking down on the crypto space for some time now, following a slew of high-profile collapses in the industry, indicating that cryptocurrencies are securities, effectively subjecting them to regulation.

So is Coinbase stock still worth a look considering the recent regulatory headwinds? Now,  cryptocurrencies themselves have actually fared pretty well this year, with Bitcoin, the bellwether crypto, up roughly 60% year-to-date. This is likely driven by easing inflation and moderating the pace of its interest rate hikes by the Fed, which is driving investor interest in riskier assets. Moreover, the crisis in the banking sector in the U.S. could also turn investors back to the crypto market.  Higher crypto prices should drive overall trading volumes for Coinbase in the near term, after the company saw a big slump in volumes late last year (down 74% in Q4). Considering that Coinbase has also shown potential for big profits during good times, we could see some upside to earnings if crypto prices continue to grow this year.

That being said, the longer-term trajectory for Coinbase could be a bit more uncertain given the SEC’s recent actions. There is also a possibility that technology investors could also move on from cryptocurrency to other hot areas such as artificial intelligence (especially following the capabilities shown by the viral ChatGPT), which could have a much more productive impact on the economy. We remain marginally positive on Coinbase stock, with a $70 per share valuation, which is 10% ahead of the current market price of $63 per share. See our analysis on  Coinbase Valuation: Expensive or Cheap? for more details on Coinbase’s valuation. Also, check out our analysis on Coinbase Revenues: How Does COIN Make Money? for details on the company’s key revenue streams and how they have been trending.

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Returns Mar 2023
MTD [1]
YTD [1]
Total [2]
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[1] Month-to-date and year-to-date as of 3/28/2023
[2] Cumulative total returns since the end of 2016

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