By Sam Boughedda
TD Cowen analysts downgraded Coinbase (NASDAQ:COIN) to Underperform from Market Perform with a $36 per share price target on Friday, telling investors in a note that there is an incremental risk to operations from the SEC Wells Notice and crypto banking crackdown.
The analysts stated it "appears multiple prongs of COIN's business are increasingly under threat of potential SEC enforcement action following the issued Wells Notice."
They explained Coinbase's 8-K notes the potential enforcement actions would relate to the company's spot market, staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
As a result, analysts believe COIN appears headed for litigation against the SEC, and they expect this to create an overhang on shares and remove positive near-term catalysts.
"We continue to think there is risk to a material portion of COIN's non-BTC/ETH trading volumes (32% in Q4:22) and assets under custody (26% in Q4:22) that could be deemed securities by regulators, exacerbating trading volume deterioration," wrote analysts. "For Coinbase Prime and Wallet, we believe this is similar to COIN's spot market business, where a portion of supported cryptocurrencies for trading could be deemed securities."
They state that if Coinbase is forced to shutter its staking business like Kraken previously, this will "materially affect blockchain rewards revenue."
Furthermore, TD Cowen also sees "early signs the regulatory crackdown on crypto banking may adversely affect COIN's USDC reserve interest income."
The analysts claim that "since March 6, USDC circulating supply has declined -21.0% to $34.7B."