- Stock plunges 20% on US financial watchdog action
- Debate about what cryptocurrencies are reignited
- Analysts on the fence over Coinbase stock amid market turmoil
Shares in Coinbase (COIN:NASDAQ) lost nearly 12% in pre-market trading after the SEC (Securities and Exchange Commission) issued the US’s largest crypto exchange a Wells notice, warning it had identified potential violations of US securities law.
The decline added to a drop of more than 8% in regular trade, leaving the shares at $77.14. Yet Coinbase stock is up 130% so far this year as cryptocurrency markets recovered, valuing the crypto exchange at about $15.7 billion.
Bitcoin, for example, is up 66% year-to-date at $27,625.
WHAT IS A WELLS NOTICE
A Wells notice is typically given at the end of an initial investigation. In response, the company can justify its stance against the SEC’s claims, after which a court makes a ruling, or they settle with fines. Not all Wells notices end up in court action if the company can justify itself thoroughly.
Under SEC chairman Gary Gensler, the watchdog has been systematically targeting crypto firms following the collapse of Sam Bankman Fried’s FTX and other big crypto operators. The SEC wants tighter investor protection laws and has been hotly pursuing companies or individuals they believe have violated existing regulations.
CRYPTO DECORRELATION
The recent decorrelation of bitcoin has been a hot topic as the recent banking crisis unfolded, with many investors pondering whether cryptocurrencies have really become a hedge against bank failures, and/or if they are the store of value supporters have advocated, a place to park your cash if you fear for your bank deposits?
Or perhaps it is neither. ‘I kind of subscribe to the idea that it’s more of an unwind of some pretty aggressive momentum trades as investors recoiled from the blowout in banks,’ said Neil Wilson, chief market analyst at Markets.com.
WHERE IT LEAVES COINBASE
Both Coinbase CEO Brian Armstrong and Chief Legal Officer Paul Grewal stated that the company is open to a legal process if an amicable resolution is not reached.
A company blog read, ‘rest assured, Coinbase products and services continue to operate as usual - today’s news does not require any changes to our current products or services.’
But market uncertainty and the previous crypto rout have left analysts on the fence when it comes to Coinbase shares. The stock is currency rated as a hold based on consensus ratings provided by Koyfin.
