Coinbase, the leading cryptocurrency exchange, is experiencing a significant decline in its stock value due to regulatory actions taken against it. The recent downgrades and accusations of insider trading have led to investors fleeing from its shares, resulting in a slump of 28.6% over the past three weeks.
“Until the regulatory ‘rules of the road’ are better established in the U.S., the stock will remain weighed down by this high level of uncertainty.”
Regulatory Uncertainty Weighs on Coinbase
The regulatory landscape surrounding cryptocurrencies in the United States remains unclear, which has significantly impacted Coinbase’s stock value. Citi Group recently downgraded the exchange’s shares from Buy to Neutral, citing the uncertain regulatory backdrop. Until clear rules are established, the stock will remain weighed down by this high level of uncertainty, said analyst Peter Christiansen.
The Securities and Exchange Commission (SEC) issued a Wells notice against Coinbase in late March, which sparked a decline in the exchange’s stock value. The notice was related to Coinbase’s proposed Lend program, which the SEC deemed to be a security. Company executives hit back at the regulator, stating that the threat of legal action when there is no clear rule book is not constructive.
Legal Action in Federal Court
Coinbase filed an action in federal court seeking to compel the SEC to respond to its July 2022 petition asking for regulatory clarity on cryptocurrencies. The federal regulator has ignored the petition and request but has continued with its crypto enforcement crackdown. The company’s CEO, Brian Armstrong, stated that they are prepared to defend their position in court, but it doesn’t have to come to that.
Coinbase was in hot water again this week when executives were accused of dumping millions in stock to avert losses using insider trading. The latest crypto lawsuit alleged that the firm’s management offloaded their stock before an earnings report prompted a decline in share prices. These allegations have further damaged Coinbase’s reputation and caused more investors to flee.
Coinbase isn’t the only company to see shares slide. The American banking crisis appears to be deepening as several banks saw losses in stock values this week. PacWest, Western Alliance, and several other financial institutions slid over 20% on May 2 following U.S. financial regulators’ seizure of First Republic Bank.