The cryptocurrency exchange Coinbase will not be spared from the profitability challenges it will face from the cryptocurrency market crash, despite having a strong brand and credibility in the cryptocurrency marketaccording to investment analysts.
credit rating company Moody’s published a note on Coinbase on Jan. 19 discussing its downgrade of the company’s senior debt and corporate family (CFR) rating, a rating assigned to reflect a view of a company’s ability to meet with your financial obligations.
Coinbase’s CFR and senior debt were downgraded to B2 and B1, from Ba3 and Ba2, respectively, indicating the company is not “investment grade” and “speculative and subject to high credit risk.”according to Moody’s.
The firm noted that Coinbase is experiencing “substantial weakening in revenue and cash flow generation” due to “difficult conditions.”specifically the fall in the prices of cryptocurrencies and less commercial activity.
Market conditions led Coinbase to lay off 20% of its employees, around 950 people, on Jan. 10, its second wave of major layoffs. after cutting 18% of its workforce in June in an attempt to reduce costs.
Nevertheless, despite Coinbase’s bid to preserve liquidity, Moody’s still expected that “the company’s profitability would continue to be challenged”.
According to Moody’s, the bankruptcy of its counterpart in the cryptocurrency market FTX, is a reason for greater concern and uncertainty in relation to the regulation of cryptocurrencies.
Said a sudden move by regulators in the crypto industry could negatively affect Coinbase’s revenue through higher regulatory compliance costs.
Moody’s added, however, that increased supervision “could ultimately favor relatively more mature and compliant crypto-asset platforms like Coinbase”.
For his part, A separate note from JPMorgan analysts argued that Coinbase’s credibility and reputation in the industry have been strengthened after recent crashes..
“While the crypto ecosystem has suffered significant new credibility issues, Coinbase has emerged with its credibility and brand strengthened, at least relatively”
Analysts at the financial firm maintained a “neutral” rating for Coinbase, saying the company could even be a “beneficiary of the challenges” other exchanges have faced following the FTX collapse..
The Shanghai hard fork for the Ethereum blockchain, soon to be deployed, could also be positive for the exchange.according to JPMorgan analysts.
The upgrade “could usher in a new era of staking for Coinbase,” as analysts estimate that 95% of retail investors on the platform could stake Ethereum after the upgrade.which would bring Coinbase up to almost $600 million a year.
On Jan. 6, Coinbase shares hit an all-time low of $31.95, after more than a year of steady declines., according to data from Yahoo Finance. The day before, veteran investor and CEO of ARK Invest, Cathie Wood, snapped up $5.7 million worth of Coinbase shares.
Since then, the share price of Coinbase and other cryptocurrency-related companies has skyrocketed..
Coinbase gained 72.6% from the Jan. 6 low and traded above $55 at market close on Jan. 20, where it posted an 11.6% gain on the day..
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