Coinbase is Very Likely to Face Enforcement Action from SEC, Says Berenberg
- Crypto exchange Coinbase will soon face enforcement action from the US Securities and Exchange Commission, says a Berenberg report.
- This action will be similar to those that the regulator has taken against trading platforms Bittrex and Kraken in the past few months.
- Berenberg said that there is “too much regulatory risk” surrounding COIN and around 87% of the companys revenue is generated from the US.
- The report said that MicroStrategy is a better alternative to COIN because of its focus on Bitcoin (BTC), which SEC considers as a commodity.
The situation between the largest crypto exchange in the United States, Coinbase, and the US securities regulator, the Securities and Exchange Commission (SEC), is bound to get worse, as per Berenberg, a multinational full-service private bank and investment bank based in Hamburg, Germany. According to a research report presented by the banking institution, the crypto exchange is set to face enforcement action from the US agency, and this action will be similar to those that the regulator has taken against trading platforms Bittrex and Kraken in the past few months.
In a research report on Monday, Berenberg pointed out that the Coinbase stock poses significant risks to investors because of its involvement with the SEC. The investment bank initiated coverage of the stock with a hold rating and a price target of $55, and as the market ended on Tuesday, the price of COIN stock was $57.88, down 4.7% during active trading hours. On the other hand, on Monday, the price of the stock closed 6% higher at $60.77.
According to Berenberg’s estimates, over 37% of the $736 million in revenue from Coinbase came from the transaction fees and spreads it posted by trading crypto tokens, excluding Bitcoin (BTC), the world’s largest cryptocurrency. However, this also includes fees from its staking services.
Despite the exchange showing signs of recovering from the crypto winter, Berenberg told investors there is “too much regulatory risk” when it comes to investing in Coinbase, while adding that:
“We believe investors should be focusing on whether the company would have the ability to successfully pivot its business model and geographic focus if it were forced to curtail or cease a large portion of its activities in the U.S. as a result of an SEC enforcement action that appears likely to occur soon.”
Berenberg stated that an action against Coinbase from the SEC is incoming, with its “recent actions targeting crypto exchanges Bittrex and Kraken likely offering a preview of that filing.” It is important to note here that US regulators, including the SEC, fined crypto exchange Bittrex for violating US securities laws. Kraken was also fined for the same and has decided to end operations in the country.
As reported earlier by BitcoinWisdom, the Chairman of the SEC, Gary Gensler, recently slammed the calls of Coinbase CEO Brian Armstrong for the regulation of crypto in the US, stating that “the rules have already been published.” The exchange had filed a petition to compel the SEC to establish rules regarding the regulation of cryptocurrencies.
The regulator asked for the dismissal of this petition, stating that any kind of official regulation will take years to develop, and until then, the SEC will continue to take enforcement actions against crypto firms that are found violating US securities laws.
To combat the worsening regulatory atmosphere in the US when it comes to crypto regulation, Coinbase announced a new “Global Advisory Council” that includes former US lawmakers, starting with five initial members. Former Congressmen Tim Ryan, Patrick Toomey, and Sean Patrick Maloney, along with Chris Lehane and John Anzalone, joined the Council.
As an alternative to the COIN stock, Berenberg stated that MicroStrategy will be a better and safer choice for investors due to its increased focus on Bitcoin, which the SEC believes is a commodity.
“We believe those considering investing in COIN would be better served by buying shares of MicroStrategy (MSTR, Buy, $340 PT) given its focus on bitcoin, which the SEC characterizes as a commodity,” concluded the analysts.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
