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Coinbase Downgraded by Piper Sandler Amid Regulatory Uncertainty
Uncertainty and Lawsuit Prompt Downgrade
Piper Sandler has downgraded Coinbase from overweight to neutral, citing the recent lawsuit filed by the Securities and Exchange Commission (SEC) against the company. The SEC accuses Coinbase of operating as an unregistered broker and exchange. Analyst Patrick Moley also expressed concerns about the lack of regulatory clarity surrounding the cryptocurrency industry, which further contributed to the downgrade. Moley has revised his price target for Coinbase to $60 from $65, indicating a potential 24.9% decrease in shares.
Crypto Prices and Asset Managers Influence Stock Performance
Although Coinbase shares have seen significant growth, with a 126% increase year to date and a 55% surge since the SEC lawsuit was filed on June 6, Moley suggests that the appreciation could be attributed to rising crypto prices and the interest of asset managers in spot Bitcoin ETFs. However, Moley points out that the surge in crypto prices has not resulted in increased trading volumes for Coinbase in recent quarters. Additionally, the approval of a spot Bitcoin ETF is uncertain, which adds to the investment risk.
Lowest Trading Volumes and User Totals Expected
Moley anticipates that Coinbase will report its lowest quarterly trading volumes and monthly transacting user totals in over two years for the second quarter. This projection reflects the challenges faced by the company amid regulatory scrutiny and the overall volatility of the cryptocurrency market. As a result, Coinbase's shares experienced a decline of more than 2.7% during premarket trading on Wednesday.
More Regulatory Progress and Fundamental Turnaround Needed
Although Piper Sandler acknowledges Coinbase's potential as a major player in the cryptocurrency industry, the firm believes that more progress on the regulatory front and a turnaround in the underlying fundamentals of the business are necessary before becoming more positive on the company. Piper Sandler emphasizes the importance of regulatory clarity in the United States and highlights the need for Coinbase to demonstrate stronger performance and stability in order to gain investor confidence.
Conclusion: Impact on New Business
The recent downgrade of Coinbase by Piper Sandler amid regulatory uncertainty raises several concerns for new businesses entering the cryptocurrency industry. The downgrade, prompted by a lawsuit filed by the SEC and the lack of regulatory clarity, highlights the potential risks and challenges that new businesses may face in this evolving landscape.
One key takeaway is the importance of regulatory compliance. The SEC's accusation of Coinbase operating as an unregistered broker and exchange serves as a reminder that businesses in the cryptocurrency space must carefully navigate the legal framework to avoid similar legal actions. New businesses must prioritize understanding and complying with regulatory requirements to establish a solid foundation and gain investor confidence.
Additionally, the impact of market volatility and fluctuating cryptocurrency prices cannot be ignored. While Coinbase shares have experienced significant growth recently, driven by rising crypto prices and interest from asset managers, the lack of increased trading volumes for the platform raises concerns. New businesses must be prepared for potential market fluctuations and align their strategies accordingly.
Furthermore, the projected decline in trading volumes and user totals for Coinbase reinforces the need for new companies to factor in potential challenges and plan for different scenarios. Developing robust business models that can withstand regulatory scrutiny and market volatility will be crucial for new businesses to thrive in the cryptocurrency industry.
In summary, the downgrade of Coinbase serves as a timely reminder for new businesses entering the cryptocurrency space to prioritize regulatory compliance, anticipate market volatility, and build resilient business models. With a clearer regulatory landscape and a focus on fundamental performance, new businesses can navigate the challenges and position themselves for success in this rapidly evolving industry.
Article First Published at: https://www.cnbc.com/2023/07/05/piper-sandler-says-coinbase-can-fall-25percent-as-regulatory-uncertainty-looms.html.svg)
