In the last few Nasdaq sessions, Coinbase’s share price trend has not followed the trend of Bitcoin and the crypto markets.
Instead, since the beginning of the year, the two trends had often been similar, but in recent days the situation for Coinbase has worsened.
Summary
Coinbase stock and comparison with Bitcoin
Over the course of 2023, both Coinbase’s stock price and BTC’s price have gone through three periods of growth.
The first period, in January, the two trends were indeed very similar, but already during the second there was a significant difference.
Indeed, after mid-March, Bitcoin’s price had reached a new annual high that was 19% higher than it had been in early February, while Coinbase’s share price had only made its new annual high at +3% above the previous one.
What’s more, the descent in late February and early March had been larger for the BTC price, so the Coinbase stock was theoretically starting from an already higher point.
The bulk of the difference, however, was during the third period of growth, that of mid-April.
Indeed, Bitcoin registered a new yearly high of +7% from that of March, whereas the high reached in April by the Coinbase stock was even 16% lower.
In recent days there has been a real disconnect, with Bitcoin’s price rising and Coinbase’s share price falling.
The descent of the Coinbase stock price
Until 25 April, the two trends had been similar, although with some differences that have widened over the months. However, from that day on there was a real decoupling.
BTC’s price rose from $27,400 to over $29,000, while Coinbase’s stock price fell from $54.8 to $54.2.
But why is Coinbase’s stock down in recent days while Bitcoin and the crypto markets are up slightly?
The cause could be the problems the exchange is having with the SEC.
The problems with the SEC
A few days ago the US exchange went before a federal judge asking to force the government agency that oversees the financial security markets to publish a response to a petition by Coinbase itself from July 2022.
At the time, the exchange asked whether the crypto industry would be regulated using only the rules already in place for other financial assets, or whether new ad hoc rules were to be expected.
The SEC decided not to answer, partly because it is not the agency that makes the laws, but Congress.
Yesterday, however, Coinbase CEO Brian Armstrong posted on Twitter their “Wells response” to the SEC.
This response refers to the notice the exchange received in March, and issued by the SEC warning the company that potential violations of US securities laws had been identified.
Coinbase’s position
According to the exchange, the SEC erred in not providing clear guidelines for its recent actions in this regard. Coinbase says that such objections should have been raised in April 2021, when the company went public, and not left to intervene nearly two years later.
Indeed, the SEC is supposed to protect consumers and investors, and so in such cases it should warn them as early as possible.
However, this issuel, from a strictly technical point of view, is not about investors and consumers, but about the relationship between the Coinbase company and US laws.
The possible impact on investors is an indirect consequence of how the SEC’s inspection and analysis procedure will evolve.
The SEC’s position.
The SEC argues that many cryptocurrencies are securities, and not commodities like Bitcoin, and it is possible that in several cases it is right.
Securities are investment contracts in which the buyer of an asset can earn financial returns only because of the work of the seller.
This definition could fit several crypto projects in which tokens are put on the market with the promise of gains.
Exchanges that list a lot of tokens and smaller cryptocurrencies are more at risk of being accused of allowing the purchase of unregistered securities, because it is more likely that crypto projects with not at all large teams and communities could fit the above definition.
Coinbase’s problem: Will this affect the performance of the stock?
As such, the risk that Coinbase may eventually be found guilty of allowing the purchase of unregistered securities is real, which is perhaps why investors seem to have begun to distance themselves somewhat from its stock on the exchange, despite the rebound in the crypto markets.
The fact that a decade ago the exchange veiled threats to leave the US certainly has not helped to calm tempers.
On the contrary, it has exacerbated the doubts of investors, who perhaps fear that the exchange may end up being somehow banned from the US market, i.e., its main market, as a consequence of the worst possible scenario among all those that can be hypothesized regarding the evolution of this diatribe.
However, it is worth noting that the SEC does not make the laws, and the US Congress could take a completely different position.
Coinbase’s current stance may also serve precisely to try to strengthen its political lobbying of the US Congress, although to date it is difficult to say whether or not this strategy is paying off.
The affair will probably go on for some time to come, and it is by no means certain that it will culminate in a defeat for the exchange.
