According to Berenberg, it would be very challenging for the crypto exchange to successfully transition away from the United States.
Berenberg’s research report suggests that the Securities and Exchange Commission (SEC) is expected to take enforcement action against Coinbase (COIN) in a manner similar to the actions taken against other crypto exchanges like Bittrex and Kraken.
The bank started covering the stock with a hold rating and set a price target of $55. On Monday, Coinbase shares ended the day 6% higher, closing at $60.77.
Berenberg estimates that around 37% of Coinbase’s net revenue in the first quarter, which amounted to $736 million, came from transaction fees and spreads generated by trading cryptocurrencies other than bitcoin (BTC). Additionally, a portion of the revenue came from fees generated by the company’s staking services.
Analyst Mark Palmer stated that the Securities and Exchange Commission (SEC) would likely focus on these revenue sources during the anticipated enforcement action against Coinbase. Specifically, transaction fees, spreads, interest income from USD Coin (USDC), and custody services could potentially be scrutinized by the SEC as part of their broader regulatory efforts within the crypto industry.
According to the note, it would be quite challenging for the crypto exchange to effectively transition away from the United States. This is because approximately 86% of Coinbase’s net revenue in the 12 months leading up to March 31 was derived from its operations within the U.S.
Berenberg advised against shorting Coinbase shares due to the high level of risk involved. They highlighted that approximately 23% of the available shares for trading have already been sold short. Shorting is a strategy where an investor borrows a security and sells it, hoping that the price will decrease. If the price does decline, the investor can repurchase the security at a lower price and return it to the lender, making a profit. However, if the price increases instead, the investor would have to buy the security back at a higher price, resulting in a loss.
Earlier this month, the major financial institution Citi downgraded Coinbase from a “buy” rating to a “neutral” rating. They also lowered their price target for the crypto exchange from $80 to $65. Citi mentioned regulatory uncertainty as one of the reasons behind their decision.
This information is for general knowledge only and should not be considered as advice for investing or making financial decisions.