The Securities and Exchange Commission (SEC) is reportedly1 investigating crypto exchange Coinbase (NASDAQ: COIN) over allegations that it allowed U.S. persons to trade unregistered securities. As a result, Coinbase’s shares were down 21% on July 26 and have fallen more than 80% since the IPO one year ago.

KEY TAKEAWAYS

  • Coinbase stock was down 21% on July 26 after news broke of a possible SEC probe.
  • The potential probe is the latest to be launched by U.S. regulators into Coinbase.
  • Coinbase stock is down about 85% since its IPO in April 2021.

An 85% Drop From its Market Debut

According to a report from Bloomberg,2 the SEC is probing whether the largest US crypto exchange enabled Americans to trade unregistered securities in the form of crypto assets. The news comes amid DOJ’s recent allegations that seven cryptocurrencies listed on Coinbase were securities in an insider trading case involving a former product manager.

The report knocked Coinbase’s share price down, and in morning trading on the NASDAQ exchange, the stock was down about 21% from Monday’s closing price of $67.07.

The latest stock price puts the total market capitalization of Coinbase at around $12.6 billion, sharply down from a value of about $86 billion when shares closed on its first day of trading.

Coinbase entered the markets with immense fanfare in April 2021. From an IPO value of $381 per share to a Tuesday afternoon trading price below $55 per share, the stock was down about 85% from its market debut just 15 months ago.

Coinbase Clarifies its Position

The debate over whether cryptocurrencies are securities isn’t limited to Coinbase. Cryptocurrency Ripple, often referred to by its cryptocurrency ticker symbol XRP, also has landed in legal hot water over whether its digital currency is more like a share of stock than a currency.

While the SEC hasn’t made an official comment on the probe, a recent tweet and blog post by Coinbase Chief Legal Officer Paul Grewal stated: “Coinbase does not list securities on its platform. Period.”

The SEC and Coinbase clash

The SEC and Coinbase have been at loggerheads in the past. Earlier in July, Coinbase said on its blog that it filed a petition with the SEC to create a clear rulemaking process for digital asset securities.4 Coinbase has said it works with the U.S. Department of Justice (DOJ) and other regulators but listed these agencies as risks to shareholders in its recent quarterly filing.

The Bottom Line

Coinbase is facing a series of challenges, including insider trading allegations, a $248 million withdrawal of stablecoins from its platform7, and a sharp decline in stock prices. The ongoing crypto winter makes the situation even murkier.

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