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Coinbase Shares Slump as SEC Regulatory Noose Tightens

Coinbase Shares Slump as SEC Regulatory Noose Tightens

Zain Vawda, Analyst
  • US SEC Probing Whether Firm Offered Unregistered Securities.
  • First Ever Case for Insider-Trading in Digital Coins, Charging a Former Coinbase Global Inc. Product Manager.
  • Cathy Wood’s Ark Funds Dump Coinbase Shares for the First Time This Year.
  • Coinbase Shares Now Down Around 79% year-to-date, Earnings Due August 9th.

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It’s been a rough few days for Coinbase (COIN). First came news late last week of the arrest, by federal prosecutors, of a former product manager who is accused of funneling inside information about future token listings to his brother and another investor. The company now faces a US probe into whether it improperly let Americans trade digital assets that should have been registered as securities, according to multiple media reports. The company’s shares dropped 21%.

Source: Bloomberg

The US Securities and Exchange Commission’s scrutiny of Coinbase has increased since the platform expanded the number of tokens in which it offers trading, according to media reports. The probe by the SEC’s enforcement unit predates the agency’s investigation into an alleged insider trading scheme that led the regulator last week to sue a former Coinbase manager and two other people.

To decide if a digital asset is a security, the SEC applies a legal test, which comes from a 1946 US Supreme Court decision. Under that framework, the agency considers a token generally to be under SEC purview when it involves investors kicking in money to fund a company with the intention of profiting from the efforts of the organization’s leadership. Coinbase’s Chief Legal Officer Paul Grewal issued the following response: “We are confident that our rigorous diligence process, a process the SEC has alreadyreviewed, keeps securities off our platform, and we look forward to engaging with the SEC on the matter.”

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The only positive news was that the company wasn’t charged by the Department of Justice or sued by the Securities and Exchange Commission (SEC). The company is however at risk of being classified as running an illegal securities exchange. Coinbase responded combatively, criticizing the SEC for overreach and emphasizing its view that its tokens do not fall under the agency’s purview.

Cathy Wood’s Ark Funds Dump Coinbase Shares for the First Time This Year

Funds controlled by Cathie Wood dumped Coinbase Global Inc.’s stock for the first time this year selling over 1.41 million shares, which were worth about $75 million as of Tuesday’s close, according to Ark’s daily trading data compiled by Bloomberg.Ark was the third-biggest shareholder of the company, holding about 8.95 million shares, as of June-end, according to Bloomberg-compiled data. It has largely been buying shares of the platform since its debut in 2021 with the most recent acquisition in May. This is a huge loss for ARK as conflicting reports put the average share purchase price around the $260 mark, with the initial purchase on IPO at $328.28 per share.

With all the uncertainty surrounding Coinbase, all eyes will undoubtedly turn to its earnings release scheduled for the 9th August, after the market close.

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Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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