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January 23, 2023 Coin Telegraph

Analysts

Analysts from Moody’s and JPMorgan hailed the exchange for its strong reputation but said it wouldn't be enough to solve its profitability woes.

Cryptocurrency exchange Coinbase won’t escape from the profitability challenges it will face from the crypto market downturn, despite having a strong brand and credibility in the crypto market, according to investment analysts.

Credit rating firm Moody’s released a note on Coinbase on Jan. 19 discussing its downgrade of Coinbase’s senior debt and corporate family rating (CFR) — a rating assigned to reflect the opinion of a company’s ability to honor its financial obligations.

Coinbase’s CFR and senior debt were re-graded to B2 and B1 from Ba3 and Ba2 respectively, indicating the firm is “non-investment grade” and “speculative and subject to high credit risk” according to Moody’s.

The firm noted that Coinbase is suffering from “substantially weakened revenue and cash flow generation” due to “challenging conditions,” specifically depressed crypto prices and lower trading activity.

The market conditions saw Coinbase lay off 20% of its employees, around 950 people, on Jan. 10, its second wave of recent major layoffs following its June 2022 18% headcount slash in a bid to cut cos

Coinbase CEO Brian Armstrong at a conference in 2018. In the most recent round of layoffs, he said the firm needed “the appropriate operational efficiency to weather downturns in the crypto market.” Image: *Flickr*

However, despite Coinbase’s bid to preserve liquidity, Moody’s still expected “the company’s profitability to remain challenged.”

The bankruptcy of its crypto exchange peer, FTX, is a cause for heightened concern and uncertainty regarding crypto regulation according to Moody’s.

It said a sudden move by regulators in the crypto industry could negatively impact Coinbase’s revenue through increased costs of regulatory compliance.

Moody’s added, however, that increased oversight “could ultimately favor the relatively more mature and compliant crypto-asset platforms such as Coinbase.”

Meanwhile, a separate note from analysts at JPMorgan argued that Coinbase’s credibility and reputation in the industry have strengthened after recent collapses.

“While the crypto-ecosystem has suffered further meaningful credibility issues, Coinbase has emerged with its credibility and brand strengthened — at least relatively."

The financial firm's analysts which maintained a rating of “neutral” for Coinbase in its latest note said Coinbase could even be a “beneficiary of the challenges” other exchanges have faced in the wake of FTX.

The upcoming Shanghai hard fork for the Ethereum blockchain could also be a positive for the exchange according to JPMorgan’s analysts.

The upgrade “could usher in a new era of staking for Coinbase” with analysts estimating 95% of retail investors on the platform may stake Ethereum post-upgrade, netting Coinbase up to nearly $600 million a year.

On Jan. 6 the Coinbase share price hit an all-time low of $31.95 after over a year of constant price declines according to Yahoo Finance data. The day prior, veteran investor and ARK Invest CEO, Cathie Wood, loaded up on $5.7 million worth of Coinbase shares.

Since then the share price of Coinbase and other crypto-related companies have surged.

Coinbase gained 72.6% since the Jan. 6 low and traded at over $55 at the close of market on Jan. 20, where it saw an 11.6% gain on the day.

S&P Global downgrades Coinbase credit rating for weak Q2 earnings, competitive pressures

August 12, 2022 Coin Telegraph

Coin Telegraph

Coinbase Global sees its credit rating downgraded by S&P Global amid regulatory pressures, weakened market performance and competitors.

Major American cryptocurrency exchange Coinbase saw its long-term issuer credit rating downgraded from BB+ to BB status by rating agency S&P Global following its latest earnings report this year.

The agency confirmed the downgrade in a note on Aug. 11, pointing toward Coinbase’s weaker performance in the second quarter of 2022 as a driving factor. Intensified competitive risk in the cryptocurrency exchange sector was also highlighted, with Coinbase losing market share to competitors this year.

“The negative outlook reflects uncertainties about the duration of the crypto market downturn and the company's ability to operate efficiently by managing operating expenses prudently.”

The downgrade also reflected the potential for ‘further market share deterioration’ driven by the competitive landscape and regulatory risk. The rating agency noted that total trading volume at Coinbase declined 30% quarter on quarter, while total cryptocurrency spot trading volume across all venues declined only 3%, leading to a lower market share.

The note conceded that spot trading has become more concentrated among market-makers and high-frequency trading firms, of which Coinbase has a far smaller market share.

The ongoing cryptocurrency bear market has also left its mark, with S&P Global highlighting total assets on Coinbase declining 63% to $96 billion from the first quarter, which has been driven by weakened cryptocurrency values and net outflows from institutional clients.

Binance’s move to do away with its Bitcoin trading fees around the world also led the rating agency to believe that Coinbase could be forced to review its own fee structures which remains a major revenue source for the company:

“We believe higher trading fees at Coinbase compared with peers, combined with such aggressive pricing actions by competitors, could increase the risk of fee compression in its retail channel (which generated about 80% of the company's total revenues in the first half of 2022).”

Regulatory pressures are also a concern, with Coinbase under the scrutiny of ongoing investigations into its staking programs and classification of various listed cryptocurrency tokens. A former Coinbase employee was also charged with securities fraud by the U.S. SEC in July 2022, putting the exchange further under the microscope.

Despite the downgrade, S&P Global expects Coinbase to maintain ‘low overall risk’ despite macro factors that have exacerbated the recent cryptocurrency market downturn.

Moody’s downgrades Coinbase due to bear: Warns it may not be the last

June 24, 2022 Coin Telegraph

CFR rating

Moody’s said further downgrades could follow if Coinbase doesn’t diversify from its current revenue model or it's unable to turn a profit even in a prolonged bear market.

Credit ratings agency Moody’s has downgraded the Corporate Family Rating (CFR) and guaranteed senior unsecured notes of crypto exchange Coinbase, and stated that both ratings have been placed under review for further downgrade.

The CFR, a rating assigned to reflect Moody’s opinion of a company’s ability to honor its financial obligations, was downgraded from Ba2 to Ba3 which is considered as below non-investment grade.

Senior unsecured notes are a type of debt a company holds that is not backed by any assets and in the event of bankruptcy must be repaid before any others. Moody’s downgraded Coinbase’s from Ba1 to Ba2.

Earlier in May, Cointelegraph reported Coinbase’s junk bonds tanked in response to an underwhelming first quarter and since the report, the bonds have continued to fall a further 9.5%.

In its rationale for the downgrades, Moody’s highlighted Coinbase’s revenue model “is tied to trading volumes, transaction activity per user and overall crypto asset prices.” It said the steep price decline in crypto over the past months has caused customer trading activity to wane, which in turn caused weaker revenue and cash flow to the company.

The uncertain environment forced Coinbase to layoff about 18% of its staff on June 14. But even with this measure, Moody’s said it expects Coinbase’s profitability to “remain challenged in the current environment”.

Competition for customers has also been heating up in the United States after Binance.US began offering zero-fees spot trading for Bitcoin (BTC). The offer follows in the footsteps of trading platform Robinhood which pioneered no-commission crypto-trading in 2018.

In a bid to attract users to the platform, on June 23 Coinbase added five new Ethereum (ETH) ERC-20 tokens plus the ability for users to send and receive some assets on the Polygon (MATIC) network along with USD Coin (USDC) on Solana (SOL).

Moody’s said it could call out for further downgrades should crypto prices continue to fall and if trading volumes on the exchange remain the same or fall further. It will also look at whether the firm can reduce expenses, its ability to maintain talent as well as potential “crypto asset regulatory developments.”

The ratings agency added that Coinbase’s ratings could be upgraded again in the future if it can generate a profit even during a bear market and diversifies its revenue through other streams not associated with trading and cryptocurrency prices, noting that crypto transaction-based revenue represented 87% of Coinbase’s net revenue in Q1 2022.

Coinbase's shares were up 13.4% to close at $58.88 on Thursday, but fell just over 1% in after hours trading. Year to date, its shares are down nearly 77%.

El Salvador’s credit rating could take hit amid Bitcoin adoption warns S&P Global

September 17, 2021 Coin Telegraph

Bitcoin Law

S&P Global believes El Salvador’s recognition of Bitcoin as legal tender has brought “immediate negative implications” for its credit rating.

Credit rating agency Standard and Poor (S&P) Global believes the country of El Salvador has severely harmed its credit rating after enacting its Bitcoin Law recognizing BTC as legal tender nationwide on Sept. 7.

According to a Sept. 16 report from Reuters, El Salvador’s Bitcoin embrace exposes its economy to significant financial risks and could pose challenges for the country’s lending industry.

The credit agency also believes the move could also dampen El Salvador’s chances of securing a $1 billion loan agreement it is seeking from the International Monetary Fund (IMF).

"The risks associated with the adoption of bitcoin as legal tender in El Salvador seem to outweigh its potential benefits," S&P said, emphasizing the “immediate negative implications” of the Bitcoin Law for the country’s credit rating.

International credit rating agencies offer a grim outlook for El Salvador’s ranking amid the lead-up to the BTC adoption.

Prior to Salvadoran President Nayib Bukele announced his intention for the country to recognize BTC as legal tender in June of this year, Fitch had stamped El Salvador with a B- in April 2020 — assessing the country as high risk with a negative outlook.

S&P’s last assessed El Salvador’s credit score as being a B- as of Dec. 28, 2018, suggesting it may be due for an update given the dramatic shift in the nation’s monetary policy.

While president Nayib Bukele maintains high approval ratings among the Salvadoran populace, his leadership and government have faced backlash enacting the Bitcoin Law despite the country’s low rates of crypto-literacy.

To my English-speaking Twitter friends: This 15/9/21, El Salvador did not celebrate 200 years of independence. Instead, we filled the streets to protest the breaking of our democracy, rule of law, and an incipient dictatorship. THIS is why we marched. #El15Marchamos pic.twitter.com/wyf1B4QzgZ
— cg (@NorteSur7) September 16, 2021

There also appears to be push back abroad from financial agencies such as the World Bank and IMF, who have both reiterated cautious sentiments this month regarding the adoption of BTC as legal tender.

IMF spokesman Gerry Rice stated in a press briefing on Sept. 16 that while the fund is still in discussions with El Salvador over a potential support program, it hasn’t changed its stance that the consequences of BTC adoption could be “dire.”

“The potential of an IMF program for El Salvador is under discussion. Again the objectives of that are clear: growth, financial stability and so on. On the specific Bitcoin issue, I think we’ve been fairly clear in our public statements,” Rice said.

On Sept. 7 a World Bank spokesperson told Reuters that “while the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings.”

Credit rating

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