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Credit ratings agency Moody’s downgrades Coinbase following SEC’s legal action

on Jun 9, 2023
  • Moody’s downgraded its Coinbase rating from “stable” to “negative.”
  • Financial services firm Berenberg Capital also views Coinbase shares as "uninvestable" in the near term.
  • However, Cathie Wood’s Ark Investment Management scoped more Coinbase shares after the SEC suit.

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Following the SEC’s legal action against the Coinbase cryptocurrency exchange for allegedly acting as an unregistered securities broker, credit ratings agency Moody’s downgraded Coinbase’s rating from “stable” to “negative.”

According to a statement released by Moody’s on June 8, Moody’s made the downgrade because of worries about how the SEC’s action would affect Coinbase’s ongoing business operations.

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Coinbase maintains a strong liquidity position

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Moody’s, however, noted that Coinbase maintains a “strong” liquidity position despite the downgrade. The company has $5 billion in cash and equivalents against $3.4 billion in long-term debt, which Mody’s considers favourable.

The ratings firm also added that it believes Coinbase will maintain its “focus on expense management” which has effectively reduced declines in transaction revenue in the past.

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Other firms also worry about Coinbase shares

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Moody’s isn’t the only firm that has changed its outlook on the COIN stock. Financial services company Berenberg Capital reduced its price target for Coinbase shares (NASDAQ: COIN) from $55 to $39 while maintaining its previous “hold” rating.

The price target reduction, according to Berenberg research analyst Mark Palmer, reflects their belief that Coinbase’s already-weak Q2 trading volumes could “persist and intensify” as a result of the SEC’s charges.

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Palmer also pointed out that in order to implement the SEC’s “desired remedy,” the exchange’s primary modes of operation, namely its staking services, would have to be completely shut down. As a result, Palmer advised investors to postpone making any short-term investments in Coinbase shares.

Ark Invest not worried

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While Berenberg and Moody’s seem to agree that Coinbase shares ratings has gone down, Cathie Wood, CEO of ARK Invest, appears unconcerned. According to Wood in an interview with Bloomberg, Coinbase will ultimately benefit from the growing regulatory scrutiny of its rival crypto exchange Binance.

Wood’s ARK Invest is currently the world’s fourth-largest holder of COIN shares and it shows no sign of giving up that title. On June 7, the firm bought additional COIN shares worth $21.6 million.

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