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Coinbase Shares Fall as Exchange Prepares for Battle With SEC

The outcome of the investigation remains uncertain, but it is likely to have significant implications for Coinbase and the broader cryptocurrency industry.

Brian Armstrong, CEO, Coinbase (Image: TechCrunch/Flickr-Creative Commons)

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Share prices of Coinbase Global, the largest cryptocurrency exchange in the United States, have taken a hit with analysts downgrading the company's rating and reducing its price target.

The company is facing a potential legal battle with the Securities and Exchange Commission (SEC) after receiving a Wells Notice last week. Multiple Coinbase products are coming under regulatory scrutiny, including an unidentified portion of listed digital assets, Coinbase Earn, Coinbase Prime, and Coinbase Wallet.

The SEC told Coinbase that they found potential violations of security laws but when the crypto exchange asked the regulatory body to identify the specific assets in question, the SEC declined.

The SEC previously issued Coinbase a Wells Notice in 2021, claiming that its "lend" product was a security as it allows users to earn interest by lending out their crypto. Coinbase eventually cancelled the launch of the product.

Related: Coinbase Gets Wells Notice, CEO Sells Stock

A Wells Notice informs a company that SEC staff have recommended that the SEC should take enforcement action for security law violation, but is not a formal charge, nor does it necessarily mean a charge will be carried out.

COIN Stock Tanks

This news and worries about its potential impact on the company's revenue caused a sharp decline in Coinbase's (COIN) shares and analyst estimates – Barclays downgraded their rating to equal-weight and reduced the price target from $86 to $70, while Oppenheimer and TD Cowen also downgraded the stock last week. Jefferies analyst Christopher John Danely lowered his price target for Coinbase from $230 to $220. The stock currently sits at US$62.54, or about 18% down in the past 5 days.

Despite these challenges, some investors remain optimistic about Coinbase's long-term prospects, citing its strong brand and user base, as well as its recent acquisition of Skew, a data analytics platform for cryptocurrency derivatives.

One of them is Ark Invest's Cathie Wood, who resumed COIN stock on Thursday and Friday, after selling $13.5 million worth earlier in the week at an average price of $83.

COIN has a market capitalization of $15.7 billion. The company’s earnings growth last year was -182.78%, amid crypto winter. However, the reversal in the crypto industry's fortunes this year has provided a boost to company’s earnings, with a growth rate of +66.81% in 2023.

SEC Takes Aim at Crypto

Coinbase isn't the only industry player caught in the SEC's crosshairs. The agency has been at loggerheads with the crypto space and has recently been playing its hand for all to see.

It issued a Well Notice to BUSD issuer Paxos, alleging that BUSD is an unregistered security as the SEC declared that crypto staking services violate security laws.

The SEC also sued Tron founder Justin Sun last week for offering TRX and BTT as investments through multiple unregistered “bounty programs."

The SEC also served SushiSwap and its "head chef" Jared Grey with subpoenas on March 21st. SushiSwap is now looking to establish a $3M legal fund to defend itself against the SEC's allegations.

Related: Lessons from the Recent US Government Actions Against Coinbase, Do Kwon & Justin Sun

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Hong Kong Cracks Down on Worldcoin's Data Collection Practices

Hong Kong Cracks Down on Worldcoin's Data Collection Practices

Authorities found that Worldcoin failed to adequately inform users about the collection of their personal data and did not obtain their informed consent. Worldcoin also retained user data for extended periods beyond what was necessary and did not provide a Chinese translation of its privacy policy.