What happened
Shares of the cryptocurrency exchange Coinbase Global (COIN +0.11%) were falling hard for a second straight day following the company receiving a Wells Notice from the Securities and Exchange Commission (SEC).
The notice from the market regulator means that Coinbase could be in violation of securities law. That, of course, spooked investors yesterday and their pessimism continued today as at least one analyst downgraded the stock in light of the notice.
As a result, Coinbase was down by 12.4% as of 11:45 a.m. ET.
So what
Coinbase's chief legal officer, Paul Grewal, said in a blog post yesterday that the company received the notice from the SEC "regarding an undefined portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet after a cursory investigation."
NASDAQ: COIN
Key Data Points
Coinbase was quick to mention in the post that a Wells Notice is not a formal charge or lawsuit, but that it can lead to one. The company also said that it welcomes the opportunity to bring clarity to the digital assets market.
Investors didn't appear to be pacified by Coinbase's blog post and comments from some analysts didn't help either. Oppenheimer analyst Owen Lau downgraded Coinbase's stock from outperform to perform and said he had concerns over the "fairness of the enforcement actions" and questions the ability for the digital asset market to grow "with seemingly limited and shrinking support from the banking system."
Now what
There are still a lot of unknowns in this situation right now, but some analysts think a significant percentage of the company's revenue is at risk.
Jefferies analyst Trevor Williams said today that the notice was an "ominous sign" and estimated that about 35% of Coinbase's revenue is "potentially at-risk, depending on the SEC's course of action."
For its part, Coinbase has said that it's "confident in the legality of our assets and services" and says that the SEC "has not been fair or reasonable" in its approach to digital assets.
