credit rating agency Moody’s has downgraded the corporate family (CFR) and senior unsecured notes of crypto exchange Coinbase, stating that both ratings have been placed on review for further downgrade.
The CFR, a rating assigned to reflect Moody’s opinion on a company’s ability to meet its financial obligations, was downgraded from Ba2 to Ba3, which is considered below non-investment grade.
Unsecured notes are a type of debt that a company has that is not backed by any assets and that, in the event of bankruptcy, must be paid before any other debt. Moody’s downgraded Coinbase’s rating to Ba2 from Ba1.
Beginnings of May, Cointelegraph reported that Coinbase junk bonds sank in response to a disappointing first quarter, and since the report bonds have continued to fall a further 9.5%.
In its justification for the downgrades, Moody’s noted that Coinbase’s revenue model “is tied to trading volumes, transaction activity per user, and overall crypto asset prices.” Said The sharp drop in cryptocurrency prices in recent months has caused client trading activity to decline, which in turn has led to a weakening of the firm’s revenue and cash flow.
The uncertain environment forced Coinbase to lay off around 18% of its staff on June 14. But, even with this measure, Moody’s said it expects Coinbase’s profitability to “remain challenging in the current environment.”
Competition for customers has also intensified in the United States after Binance.US began offering commission-free spot trading for Bitcoin (BTC).. The offering follows in the footsteps of trading platform Robinhood, which pioneered commission-free cryptocurrency trading in 2018.
In an attempt to attract users to the platform, on Thursday, Coinbase added five new ERC-20 Ether (ETH) tokens, plus the ability for users to send and receive some assets on the Polygon network alongside USD Coin (USDC) on Solana.
Moody’s said there could be more downgrades if cryptocurrency prices continue to fall and if trading volumes on the exchange remain the same or fall further.. It will also examine whether the company can reduce expenses, and its ability to retain talent, as well as possible “regulatory developments in crypto assets.”
The rating agency added that Coinbase’s ratings could move back up in the future if it can generate a profit even during a bear market and diversifies its income through other streams not associated with cryptocurrency trading and pricingnoting that revenue based on cryptocurrency transactions accounted for 87% of Coinbase’s net revenue in the first quarter of 2022.
Coinbase shares rose 13.4% to close at $58.88 on Thursday, but fell just over 1% in after-hours trading. So far this year, its shares are down almost 77%.
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