On January 8th, analysts at Cowen downgraded their rating on Coinbase from outperform to equal to the market, citing low visibility of retail transaction volume in 2023 and the possibility of enforcement actions from the US Securities and Exchange Commission (SEC). The target price for Coinbase was also lowered by more than 50% to $36.
According to the analysts, the downgrade is driven primarily by two factors: the uncertain outlook for Coinbase’s retail transaction volume in the coming year, and the risk of enforcement action from the SEC. The analysts noted that the SEC may take action against trading platforms like Coinbase before SEC Chairman Gary Gensler appears before Congress at the end of the first quarter.
One concern for the analysts is the potential for regulators to treat Coinbase’s non-BTC/ETH trades (which account for 36% of the platform’s activity) and custody assets (31% of its activity) as securities, which could further decrease transaction volume. In light of these risks, the analysts believe Coinbase may be forced to significantly reduce its staff again in early 2023.
Despite these concerns, the analysts at Cowen still believe that Coinbase has sufficient capital to expand its product offerings in the coming years. However, they also noted that there is a risk that Coinbase may not be able to effectively lay off staff or cut costs in early 2023.
Overall, the downgrade and lowered target price for Coinbase reflect the company’s declining turnover and adjusted EBITDA in 2023, as well as the risks associated with potential SEC enforcement action and the uncertain outlook for retail transaction volume. It remains to be seen how Coinbase will navigate these challenges in the coming year.