SEC Expected To Target Coinbase In Regulatory Action, Says Berenberg Report

The Securities and Exchange Commission (SEC) is expected to launch regulatory action against Coinbase Global Inc COIN soon, according to a research report from Berenberg. It's a move that might resemble previous actions against competing cryptocurrency exchanges such as Bittrex and Kraken.

Berenberg initiated its coverage of the stock with a Hold rating and a price target of $55.

Berenberg's report suggests that a significant portion of Coinbase’s revenue could be under threat, CoinDesk reported.

Around 37% of the company's first-quarter net revenue of $736 million was derived from transaction fees and spreads related to trading cryptocurrencies besides Bitcoin BTC/USD, as well as staking service fees.

Mark Palmer, an analyst at Berenberg, commented that "at a minimum, these revenue sources likely would be targeted by the SEC in the enforcement action that we anticipate the commission to file soon."

He further suggested that other revenue streams for Coinbase, such as interest income from USD Coin USDC/USD and custody, could also face regulatory scrutiny from the SEC.

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However, shifting its business focus away from the U.S. could be a challenging task for Coinbase, given that approximately 86% of its net revenue over the 12 months ending March 31 was generated from its U.S. operations, the report states.

As far as investment strategies are concerned, Berenberg advises against shorting Coinbase shares, considering it a risky trade.

The report highlights that about 23% of the company's free float is already sold short.

Short selling is a speculative strategy where an investor borrows a security and sells it, hoping for a price decline, so they can buy it back at a lower price, return it to the lender, and pocket the difference.

Earlier this month, banking behemoth Citigroup downgraded its rating on Coinbase from a Buy to Neutral and reduced its price target from $80 to $65, also due to concerns over regulatory uncertainties.

Price Check: Shares of Coinbase were trading 1.45% lower on Tuesday at $59.89 at the time of publication.

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