Coinbase Junk Bond Downgraded Further by S&P on Weak Profitability, Regulatory Risks
The agency downgraded Coinbase’s credit rating to BB- from BB, one step closer to investment grade.
S&P Global Ratings, the world’s largest rating agency, has downgraded its long-term credit rating and senior unsecured debt rating on Coinbase (COIN), citing weak profitability due to lower trading volumes and regulatory risks, the agency said on Wednesday.
Coinbase’s rating was downgraded to BB- from BB, reflecting significant and ongoing uncertainty over adverse business, financial and economic conditions, moving further away from investment grade. Both ratings are considered junk bonds.
Coinbase and MicroStrategy (MSTR) are among two cryptocurrency-related junk bond issuers. Coinbase shares were flat in after-hours trading on Wednesday.
The rating agency said weaker trading volumes following the FTX crash, pressure on Coinbase’s profitability and regulatory risks were the main reasons for the downgrade.
“We believe FTX’s bankruptcy in November dealt a severe blow to the credibility of the crypto industry, leading to a decline in retail participation,” S&P wrote. “As a result, trading volumes across exchanges, including Coinbase, fell sharply.”
Coinbase generates most of its revenue from retail transaction fees, and transaction volumes have declined even more in recent weeks. As a result, S&P expects the U.S.-based exchange’s profitability to “continue to be under pressure” in 2023, saying the company could “post very small S&P Global Adjusted EBITDA” this year.
Coinbase’s revenue in the third quarter of 2022 was down 44% from the second quarter, driven by lower trading volumes, the company said in November.
Post time: Jan-12-2023