Berenberg, one of the leading financial institutions, recently published a research report that predicts that the US Securities and Exchange Commission (SEC) will soon impose sanctions on one of the largest cryptocurrency exchanges, Coinbase (COIN). The report suggests that the regulatory decision could have broader implications, potentially reflecting the SEC’s stance against rival crypto exchanges Bittrex and Kraken. Here are the details…
Berenberg report warns for cryptocurrency exchange Coinbase
Berenberg said in an investigative report released Monday that the Securities and Exchange Commission (SEC) will soon take a decision to impose sanctions against Coinbase (COIN), which is likely to reflect the regulator’s decisions against rival crypto exchanges Bittrex and Kraken. The bank launched with the stock’s degree of coverage and a price target of $55. Coinbase shares were up 6 percent on Monday to close at $60.77.
Berenberg estimates that at least 37 percent of Coinbase’s $736 million first-quarter net income came from transaction fees and spreads from trading cryptocurrencies other than Bitcoin (BTC) and fees from staking services. “At the very least, these revenue streams will likely be targeted by the SEC in the sanctions lawsuit that we expect the commission to open soon,” Berenberg analyst Mark Palmer wrote. He also added that some of Coinbase’s other revenue streams, such as interest income and custody from USD Coin (USDC), “could be plugged into the SEC’s crypto industry network in the near future.”
Coinbase’s move away from the US could be a problem
The note said that successfully moving away from the US will be a challenge for the crypto exchange, as approximately 86% of Coinbase’s net income in the 12-month period ending March 31 comes from its US operations. Berenberg said that shorting Coinbase shares is a very risky transaction, especially since about 23 percent of the publicly traded portion has already been shorted.
Short selling is a way to bet that a price will drop. An investor borrows a security and sells it in the hope that the price will drop. He then buys back the security and returns it to the lender. The borrower can pocket the difference if he’s right, or pay the difference if he’s wrong. Wall Street giant Citi downgraded its rating to neutral on Coinbase earlier this month, lowering its price target for the crypto exchange from $80 to $65. Regulatory uncertainty also cited as the reason.
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