Why Coinbase Global Stock fell 12.2% in September

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What happened

Actions of Global Coinbase (NASDAQ: COIN) were down 12.2% in September, according to data from S&P Global Market Intelligence. The action tends to correlate with cryptocurrency prices, which have fallen over the month, and the company has announced that the Securities and Exchange Commission (SEC) will sue the company if it launches its new loan program. stable parts.

In addition, major stock market indices fell in September, with the S&P 500 index down by around 5% over the period. This likely exacerbated the decline in Coinbase stock.

Image source: Getty Images.

So what

A stablecoin is a cryptocurrency backed by a reserve, usually a fiat currency like the US dollar. This means that when you buy stable coins, they can theoretically be converted back to US dollars at any time. Coinbase, as one of the largest crypto companies in the world, helped launch a stablecoin called USD Coin (USDC) with a company called Circle. There is currently 31.2 billion USDC in circulation, meaning that $ 31.2 billion (in US dollars) has been exchanged for stablecoin.

What does this have to do with Coinbase stocks and the SEC? Well, in order to make money, Coinbase planned to offer USDC owners the option of lending their stablecoins to Coinbase, paying them an annual interest rate of 4% (eight times the national average. ) if they join the loan program. Coinbase can make money doing this because other crypto traders (or really anyone interested in a loan) are willing to pay higher interest rates to have USDC loaned to them by Coinbase. When Coinbase came to the SEC to launch the loan program, the SEC gave the company a Wells notice, meaning the regulator intends to sue Coinbase if it launches the product.

With nearly $ 5.5 billion in sales expected this year, Coinbase’s business is not going to end because of this SEC crackdown. However, it does indicate that the government could crack down more aggressively on any new initiatives by the company, which could hamper its ability to grow over the next decade.

In other news, major cryptocurrencies like Bitcoin (CRYPTO: BTC) fell last month. The coin started at around $ 50,000 in early December, but ended the month closer to $ 40,000. Coinbase owns Bitcoin and makes money from cryptocurrency transactions, so its action tends to correlate with any major movement in the cryptocurrency market.

Now what

This news from the SEC and Coinbase will not crush the company’s current operations, but there are concerns that the SEC will suppress the company’s potential growth opportunities. If you are bullish on the crypto industry and believe this is the future of finance, these regulatory risks should be considered and could impact Coinbase shares in the long run.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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