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Coinbase shares dive for a second day amid news of SEC lawsuit

Alejandro Arrieche
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Coinbase shares are sliding for the second consecutive day in pre-market stock trading action today following news about an upcoming lawsuit from the United States Securities and Exchange Commission (SEC) targeting a lending program the firm has recently promoted.

According to a blog post published by the company yesterday, Coinbase said that it had received a “Wells” notice – a document that states the agency’s willingness to take a certain matter to the courthouse.

Coinbase stated that it had engaged in discussions with the SEC for six months to launch a program known as Coinbase Lend that consists of offering a 4% annual percentage yield (APY) to customers who hold a select number of assets including the popular stablecoin Tether (USDT).

The product, which is not considered a security by the company and therefore may not fall within the boundaries of SEC regulation, was deemed a security either way without any explanation as to why officials qualified it as such, the company stated.

Coinbase (COIN) did not launch the product but went ahead and published a waitlist for customers who would like to participate once it is available. That decision seems to have triggered the SEC’s hostile response against the exchange as the company was immediately prompted to reveal the identities of those who had signed up for the program – something the exchange refused to do. The agency has now taken legal steps to sue the company, possibly alleging that they promoted a product that had not yet received the blessing of the regulatory body.

Coinbase alleges that the SEC’s attitude toward the industry is unwelcoming

In light of the situation, Coinbase’s senior management stated: “The SEC has repeatedly asked our industry to “talk to us, come in.” We did that here. But today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued”.

For now, Coinbase will continue to keep its Lend program off the market until October at least, said the company, while it will continue to seek all possible avenues to obtain further clarification as to why the program is being treated as a security offering.

Market participants have reacted negatively to the news as shares of the popular cryptocurrency exchange went down 4.2% yesterday after the blog post came out while they are sliding another 3.2% this morning. This downtick may also be catalyzed by the sharp drop that the market capitalization of cryptocurrencies as a whole experienced yesterday.

How have Coinbase shares performed so far this year?

Coinbase went public on 14 April this year via direct listing with shares of the company initially rising to a peak of $429.54 per share on that day to then settle much lower at $328.28 apiece.

Since then, the stock has retreated nearly 19% amid the latest drop that the price of Bitcoin (BTC) and other crypto tokens experienced although shares were progressively recovering since they hit a bottom at around $213 per share.

Back on 11 August, the company shattered analysts’ estimates for its second-quarter financial results as revenues landed at $2.23 billion or $350 million above the consensus estimate while adjusted earnings per share came in at $6.42 or 149% above the consensus forecast of $2.58 per share as compiled by Capital IQ.

What’s next for Coinbase shares?

coinbase shares
Coinbase (COIN) price chart – 1-day candles with multiple indicators – Source: TradingView

Even if this morning’s downtick spills over to the live session as-is, the price action for Coinbase would still remain confined within the boundaries of the upward price channel shown in the chart above. That said, a break below this threshold may result in a potentially more pronounced decline for the stock moving forward.

Currently, the stock is being valued at 46 times its forecasted earnings for the next twelve months and 21 times its adjusted EBITDA for the past twelve months.

Considering the up-and-coming nature of the cryptocurrency market and its promising future prospects Coinbase’s valuation appears to be an attractive long-term pick as these latest downticks may be providing an opportunity for late buyers to enter a position at a much more reasonable price tag.

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Alejandro Arrieche

Alejandro Arrieche

Alejandro is a financial analyst with more than 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis. Other publications Alejandro has written for include The Modest Wallet, Capital.com, and LearnBonds.