Coinbase had its corporate family rating and guaranteed senior unsecured notes cut by Moody's, with the ratings agency citing "challenging conditions in the crypto asset operating environment" for the downgrade. 

Coinbase's outlook was listed as stable, driven by its "currently healthy liquidity position that is absorbing the ongoing cash flow drain the firm is experiencing,” Moody’s said, while also giving a nod to the company's recent job cuts. 

Moody’s downgraded Coinbase’s corporate family rating to B2 from Ba3, while notes fell to B1 from Ba2. The move "reflects Coinbase's substantially weakened revenue and cash flow generation capacity" as a result of the current state of the crypto market. 

Another factor contributing to the rating is uncertainty coming from possible regulatory changes following the collapse of FTX.

“A sudden tightening of regulations and related oversight could have a credit negative impact on Coinbase's revenues as well as increase its cost base,” said Moody’s.

Path to upgrades

Coinbase could see upgrades to its ratings by way of increased regulatory clarity that doesn’t impact on the company’s bottom line if restructuring efforts result in reliable profitability, and if it diversifies into sustained non-transactional based revenue streams, said Moody’s.

However, if Coinbase’s liquid position rapidly declines, fails to return to healthy cash flow, encounters an unfavorable regulatory environment, or incurs significant regulatory penalties it could lead to additional rating downgrades by Moody’s.

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from former FTX and Alameda founder Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.