Cryptocurrency exchange Coinbase’s stock price is expected to remain under pressure until the United States regulators establish definitive legal guidelines, according to investment analysts at Citi. On May 1, the investment bank downgraded Coinbase shares from “Buy” to “Neutral” and reduced its price target due to numerous uncertainties while the company deals with regulators. Citi analyst Peter Christiansen mentioned in a May 1 note that the stock would continue to be affected by a high degree of uncertainty until US regulatory “rules of the road” are better established.
Coinbase revealed in March that it had received a Wells notice from the Securities and Exchange Commission (SEC) regarding potential securities law violations, which could lead to future enforcement action. In April, the company countered the SEC by filing a federal court action demanding regulatory clarity for specific digital assets. Later that month, Coinbase CEO Brian Armstrong and Chief Legal Officer Paul Grewal released a public response to the March Wells notice on YouTube.
Citi tapping the brakes on Coinbase. Downgrades to hold on regulatory uncertainty. $COIN +41% YTD#NotableCall pic.twitter.com/qSp4pexBtR— Amber Kanwar (@baystreetamber) May 2, 2023
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Possible Outcomes for Coinbase’s Regulatory Struggles
Christiansen observed that both long and short debates are focused on Coinbase’s regulatory challenges, outlining a few potential outcomes for the ongoing dispute:
- A lengthy legal battle against the SEC, where an operating injunction cannot be ruled out.
- Legislative progress in a difficult legislative calendar and an upcoming election year.
- Ripple’s ongoing legal process, which could set a precedent for future cases.
The analyst also noted that recent SEC developments do not indicate that the parties are close to resolving their differences. As of this writing, Coinbase is trading at $51.32, down 58.5% over the past year, according to Yahoo Finance. Its stock price fell about 16% on March 22 after disclosing the Wells notice.
1/ Today we’re sharing our “Wells response” to the SEC. As part of our response, @iampaulgrewal and I sat down to explain why we’re confident in the facts and on the law, and why a Wells notice is not in the best interest of the US. https://t.co/zkNaWGgtcK— Brian Armstrong 🛡️ (@brian_armstrong) April 27, 2023
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Legal Challenges Mount for Coinbase
Coinbase has recently been targeted by two proposed class-action lawsuits. One alleges that the company violated privacy laws in Illinois by collecting customer biometrics, while the other claims that certain executives profited from insider information when the company went public. Coinbase Global (NASDAQ:COIN) stock was down 1.6% in Tuesday’s pre-market trading. Citigroup analyst Peter Christiansen downgraded the crypto exchange to Hold from Buy during Monday’s after-trading hours, citing a “high level of uncertainty” in the regulatory environment.
Moreover, Bloomberg reported that an investor sued Coinbase insiders, alleging they quickly sold their stock within days of its public listing two years ago to avoid $1 billion in losses.
Citi Analyst Awaits Regulatory Clarity
Citi’s Christiansen lowered the price target for COIN shares to $65 from $80. The analyst continues to view Coinbase as a category leader and a well-positioned crypto platform for broader integration with traditional finance. However, he argues that “Coinbase is now tasked to advocate for a reputationally damaged industry and pave a sustainable pathway towards regulatory compliance.”
Christiansen prefers to remain on the sidelines until there is more clarity about US market regulatory rules. Coinbase recently provided a strong response to the SEC’s Wells Notice. Wall Street maintains a Hold consensus rating on Coinbase stock, with seven Buys, eight Holds, and five Sells. The average price target of $64.89 suggests a 29.4% upside from current levels. Shares have declined approximately 26% over the past month but are still up about 42% year-to-date.
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In conclusion, Coinbase’s stock performance is likely to remain under pressure until there is clarity on US regulatory guidelines for cryptocurrencies. Citi’s downgrade of the stock reflects the ongoing uncertainty surrounding the company’s legal and regulatory challenges. While Coinbase is considered a category leader with strong potential for integration with traditional finance, the resolution of its regulatory predicament is crucial for its future growth. Investors and analysts alike are watching closely to see how the regulatory landscape evolves and how it will impact Coinbase’s stock price in the long run.
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Frequently Asked Questions
Why Coinbase stock downgraded?
Citi downgraded Coinbase stock due to the ongoing uncertainty surrounding US cryptocurrency regulations and the company's legal challenges.
What's Coinbase's regulatory issue?
Coinbase received a Wells notice from the SEC regarding potential securities law violations, leading to a federal court action seeking regulatory clarity for digital assets.
How are lawsuits affecting Coinbase?
Two proposed class-action lawsuits targeting Coinbase have added to the company's legal challenges, further contributing to stock performance uncertainty.
What's Citi's new price target?
Citi analyst Peter Christiansen lowered the price target for Coinbase shares to $65 from the previous $80.
What's the Hold consensus?
The Hold consensus rating on Coinbase stock represents a neutral view on the stock, with a mix of Buy, Hold, and Sell recommendations from Wall Street analysts.