Important Points

• Coinbase was issued a Wells notification this week and now anticipates official charges from the SEC
• Regulators keep on going after US crypto companies, hurting Coinbase’s prospects
• The exchange dismissed its second round of employees in January, closed down activities in Japan due to “market conditions”, and saw its share price fall throughout 2022

Coinbase just can’t seem to get out of this funk. 

I wrote a detailed investigation on the ailing crypto exchange last October, when founder and CEO Brian Armstrong sold 2% of its stake. But things have only gotten worse since then. 

It discharged 20% of its staff in January (I examined what this implied for the company here), six months after it had already cut 18%. It additionally ended its Japanese activities in January, citing “market conditions”. 

Regardless of this, the stock had been recovering in 2023 as a gentler figure of the future way of interest rates was profiting the tech area on the loose. What’s more, at that point, the SEC intruded on to end the gathering this week. 

1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.

— Brian Armstrong (@brian_armstrong) March 22, 2023

SEC Claims Coinbase Is Breaking Securities Regulations

The SEC issued Coinbase a Wells notice, cautioning that it was possibly disregarding US securities law. The share price has fallen 24% in the two days since.  

“Based on discussions with the Staff, the Company believes these potential enforcement actions would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet,” Coinbase said in a regulatory filing. “The potential civil action may seek injunctive relief, disgorgement, and civil penalties.”

The market presently anticipates the precise charges becuase a Wells notification, as Armstrong noticed in his tweet above, typically precedes legal action. 

Coinbase chief legal officer Paul Grewal additionally interceded, noting that Coinbase was certain in the face of the charges. 

“Although we don’t take this development lightly, we are very confident in the way we run our business – the same business we presented to the SEC in order for us to become a public company in 2021,” he posted. 

Regulatory Climate Continues To Get Worse For Crypto

Despite Coinbase’s defiance, at least in public, the reality is that this marks just the latest move by US regulators to clamp down on crypto. 

Recent months have seen the dramatic shutdown of the Binance-branded stablecoin BUSD, a top 10 cryptocurrency, a fine for leading exchange Kraken relating to disclosures around its staking problem, and now this Wells notice for Coinbase. 

Then there is the banking turmoil. While not caused by crypto, the shutdown of SVB, Silvergate and Signature means the main crypto banks have evaporated into thin air. That starves the industry of vital fiat on-ramp and is an unquestioned headwind going forward. 

Whether you view any of the above as unfair or not, the bottom line for Coinbase is that the country in which it is headquartered, the United States, is a significantly more hostile environment for the crypto industry than it was a few months ago. That is obviously bad news for investors, and for the business as a whole. 

What Happens Next?