Citi Believes US Rules are Clear on Coinbase Stock: "They Will Weigh Down the Stock"

Citi Believes US Rules are Clear on Coinbase Stock: “They Will Weigh Down the Stock”

Updated: 04 May 2023

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Cryptocurrency exchange Coinbase’s stock price is expected to continue to face a “high level of uncertainty.” Reports show that Citi recently downgraded Coinbase’s shares from “buy” to “neutral” and lowered its price target. The investment bank cited “too many unknowns” as the company battles with regulators.

According to analysts from Citi, the stock price will remain “weighed down” until regulators establish the legal “rules of the road” in the United States. Citi analyst Peter Christiansen wrote that until the regulatory framework is clearer, high uncertainty would hold the stock price back.

“Until the regulatory ‘rules of the road’ are better established in the U.S., the stock will remain weighed down by this high level of uncertainty,” Citi analyst Peter Christiansen wrote on May 1.

In March, Coinbase revealed it had received a Wells notice from the SEC. This disclosure from Coinbase clearly shows that the company may have violated securities laws and that future enforcement action could be taken. In response, Coinbase filed a federal court action in April, asking for clarification on the regulatory status of specific digital assets.

In addition, the CEO of Coinbase, Brian Armstrong, and Chief Legal Officer Paul Grewal issued a video response to the Wells notice later in the month.

1/ Today we’re sharing our “Wells response” to the SEC. As part of our response, @iampaulgrewal and I sat down to explain why we’re confident in the facts and on the law, and why a Wells notice is not in the best interest of the US. https://t.co/zkNaWGgtcK

— Brian Armstrong (@brian_armstrong) April 27, 2023

Christiansen noted that the regulatory situation at Coinbase has become the center of long and short debates. The regulatory impasse could play out in different ways, such as through a lengthy legal process against the SEC. The analyst also suggested that clarity could come from a long-awaited legislative movement amid a challenging legislative calendar. Christiansen also noted that clarity could come from Ripple’s ongoing legal battle, which might set a precedent.

“Clarity could come from: (i) a lengthy legal process vs. the SEC, where the possibility of an operating injunction cannot be ruled out, (ii) long-awaited legislative movement amidst a challenging legislative calendar and an upcoming election year, and/or even (iii) Ripple’s ongoing legal process, which could be potentially precedent setting,” the analyst wrote.

Coinbase Stock Fall Following Wells Notice

Coinbase is trading at $51.32, which is a decline of 58.5% over the past year. The company’s stock price dropped by approximately 16% on March 22, following the announcement of the Wells notice. Besides the ongoing regulatory battle with the SEC, Coinbase is currently facing two proposed class-action lawsuits.

The first lawsuit claims that the company violated privacy laws in Illinois by collecting customer biometrics, while the second alleges that certain executives benefited from insider information when the company went public.

The lack of regulatory clarity has been a major issue for the cryptocurrency industry. Many traditional investors have been hesitant to invest in cryptocurrencies because of regulatory concerns. Some countries have already taken steps to address this issue, with the European Union recently proposing new rules for cryptocurrencies. However, the United States has yet to make a move.

The ongoing regulatory uncertainty around cryptocurrencies has made it difficult for companies like Coinbase to attract institutional investors, who are wary of investing in an asset class that is yet to be fully regulated. Until the regulatory picture becomes clearer, it is likely that Coinbase’s stock price will continue to be weighed down by uncertainty.