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Here's Why Coinbase Shares Are Falling Today

By Zhiyuan Sun – Sep 20, 2021 at 2:23PM

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This top crypto brokerage just encountered a major blunder.

What happened

As of 1:30 p.m. EDT on Monday, shares of Coinbase Global (COIN -2.83%) were down 4.58%. The second-largest crypto-trading platform in the world announced today that it would be dropping plans for cryptocurrency lending products.

The move came after the Securities and Exchange Commission threatened to sue the company if it proceeded with its plans. Coinbase had planned to offer 4% annual yields to investors who lent out their USDC stablecoin on the platform. In addition, it had been scaling down its asset loan operations, which involves using crypto as collateral for loans to pay off everyday expenses. 

Bitcoin symbols located on a digital panel.

Image source: Getty Images.

So what

The move dealt a crippling blow to Coinbase, which is trying very hard to diversify out of its reliance on trading commissions for revenue. It's essential considering that the brokers in the sector are trying to offer the lowest fees possible to solicit customers. But the glass is always half full. If anything, regulatory uncertainty surrounding cryptocurrencies caused an industrywide sell-off, with trading volume on Coinbase surging over 100% compared to the previous day. 

Now what 

But over the long term, Coinbase's business model won't be sustainable if it backs down to regulatory pressure every time it offers a new product. So overall, I'd be careful buying shares of this company at a market cap of $50 billion even after the sell-off. It generated about $8 billion in sales annualized and has an unsustainable revenue growth rate of over 1,000% year over year. 

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Coinbase Global, Inc. Stock Quote
Coinbase Global, Inc.
$44.28 (-2.83%) $-1.29
USD Coin Stock Quote
USD Coin
$1.00 (-0.07%) $0.00

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