S&P downgrades Coinbase‘s credit rating to BB

TL: DR

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In a credit rating downgrade, S&P Global Ratings downgraded Coinbase from BB+ to BBThis comes after its continuously weaker performance in the second quarter of 2022. The exchange lost $1.1 billion in that quarter, compared with $430 million in the first quarter.The company may take this action to change its fee structure. The S&P Global downgrade does not change the fact that it expects Coinbase to maintain a "low overall risk.

As Crypto Winter continues, the credit rating of Coinbase (COIN) was cut by S&P Global Ratings. This marks another blow to the cryptocurrency exchange in an already grim week.

A note released by the agency on Thursday confirmed Coinbase's downgrade, citing an overall weaker performance during the second quarter of 2022. In addition, Coinbase lost market share to competitors this year due to increased competition in the cryptocurrency exchange sector.
The company's negative outlook reflects concerns about the duration of the crypto market downturn and its ability to manage operating expenses prudently.


As a result of the competitive landscape and regulatory risk, the downgrade also reflected the risk of "further market share deterioration." According to the rating agency, Coinbase's trading volume declined by 30% from quarter to quarter, while all cryptocurrency spot trading volumes declined only by 3%, resulting in a decline in market share.

Details on the event

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During the past year, Coinbase sold about $2 billion of junk-rated bonds, indicating Wall Street's growing acceptance of crypto. However, a dramatic drop in crypto prices has pushed the stock price of Coinbase down, and the company has faced mounting pressure to control costs.

Coinbase's long-term issuer credit rating and senior unsecured debt rating were downgraded by Standard & Poor's on Thursday for "weak earnings and competitive pressure." According to S&P, Coinbase's ratings are now "negative," meaning more reductions may be forthcoming.
As a result of a decline in the company's market share this year, there has been an increase in competitive risk in the crypto exchange sector.

According to the more dire assessment, there is uncertainty about Coinbase's ability to manage costs and the possibility that market share would continue to deteriorate amid a challenging competitive landscape and increased regulatory risks.

In Thursday's session, shares of Coinbase closed at $84 per share, down more than 10%. Over $350 was reached by its shares last fall.
Coinbase reported that its second-quarter trading volume fell roughly 30%, from $309 million to $217 million, and it missed consensus revenue estimates. During the quarter, the exchange lost $1.1 billion, compared with a loss of $430 million in the first quarter.

The Coinbase quarterly report noted that it is under investigation by U.S. securities regulators regarding its token listing processes and staking programs.

A possible change of fee structure

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The rating agency believes Coinbase's fee structures, which remain a major revenue source for the company, may also have to be reviewed in light of Binance's move to do away with Bitcoin trading fees worldwide.

According to a statement made by the agency, when Coinbase's higher trading fees were compared to peers, combined with aggressive pricing by competitors, it was discovered that the retail channel (which generated 80% of the company's revenue in the first half of 2022) could suffer from fee compression.

Regulatory pressure is also a concern, with Coinbase under investigation for its staking programs and classifications of cryptocurrency tokens. In addition, in July 2022, the U.S. Securities and Exchange Commission charged a former Coinbase employee with securities fraud.

Conclusion

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The S&P Global downgrade does not change the fact that it expects Coinbase to maintain a "low overall risk" despite macroeconomic factors that have exacerbated the recent cryptocurrency market downturn.



Author: Gate.io Observer: M. Olatunji
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