Coinbase shares were 5% higher on Friday as investors appeared to largely shrug off yesterday's S&P downgrade.
The rating agency's move cited the company's disappointing earnings report earlier this week, in which the cryptocurrency trading platform reported a $1.1 billion loss for the second quarter. S&P Global Ratings cut Coinbase’s long-term issuer credit rating and senior unsecured debt ratings to BB from BB+ days.
“The downgrade reflects our view that weak earnings have weakened the company's coverage ratios and that cyclical variations for Coinbase have increased beyond our previous expectations due to market share erosion and a higher risk of margin compression,” the agency said. “Moreover, competitive risk has intensified in the crypto exchange sector, with the company's market share decreasing this year.”
S&P has a negative outlook on the company and said further ratings cuts may follow.
On Aug. 9, Coinbase reported trading volume of $217 billion for the second quarter, down from $309 billion in the previous period. The company narrowed the range for its annual forecast for MTUs to 7 to 9 million from between 5 million and 15 million as crypto prices tumbled in the first half of 2022.
Adding to the negative news, the company revealed in a regulatory filing after the results that its staking activities are being investigated by the Securities and Exchange Commission.
Tighter regulation could threaten revenue growth, including by curtailing the growth of its staking activities, which S&P said accounted for 8% of total revenue in the first half of 2022, compared with 1% in the prior year.
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