Coinbase May Face Strong Actions From The SEC

Key Points:

• The Securities and Exchange Commission (SEC) will soon bring an enforcement action against Coinbase (COIN), similar to Bittrex and Kraken.
• The SEC will likely be suing soon, targeting something like staking and USDC interest income.
• Short-selling Coinbase stock is too risky, Berenberg said, as about 23% of its free-floating shares have been shorted.

According to Coindesk, a report on Monday by Berenberg suggests that the SEC will soon take action against Coinbase, similar to what it did with Bittrex and Kraken.

In mid-February, Kraken Crypto Exchange “immediately” terminated its crypto staking service platform for US customers and paid $30 million fees to SEC, to which they offered unregistered securities.

In mid-April, the SEC charged crypto asset trading platform Bittrex, Inc. and co-founder and former CEO William Shihara for running an unregistered national stock exchange, brokerage, and clearing agency. The SEC also charged Bittrex, Inc.’s foreign arm, Bittrex Global GmbH, for failing to register as a national stock exchange in connection with operating a single common order book alongside Bittrex. On May 8, the exchange declared bankruptcy following the SEC’s allegation.

Coinbase (COIN) will soon be the target of enforcement action from the Securities and Exchange Commission (SEC), which may reflect the regulator’s activities against cryptocurrency exchanges. Bittrex and Kraken are electronic competitors, according to Berenberg’s research study from Monday.

Berenberg estimates that at least 37% of Coinbase’s $736 million in first-quarter net revenue came from transaction fees and spreads posted by trading crypto tokens other than bitcoin (BTC) and fees from its staking services.

Analysts expect the SEC to be suing soon, targeting these revenue streams and things like staking, USDC interest income, and custody.

Successfully pivoting away from the US would be a tall order for the crypto exchange, as about 86% of net revenue that Coinbase generated in the 12 months ended March 31 came from its US operations, the note said.

Short-selling Berenberg claimed that Coinbase stock is extremely hazardous, particularly given that around 23% of its freely floating shares have been traded short. Selling short is a wager that the price will decline. In the hopes that the price would drop, an investor borrows a security and sells it. The securities are then repurchased and given back to the lender. If the borrower is correct, they can keep the difference; if they are incorrect, they can keep it.

Coinbase said today that it has expanded its services to Singapore amid tightening US crypto regulations and increased scrutiny by regulators.

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