Regulatory Limbo Likely for Coinbase as SEC Brings Charges

Coinbase Stock at a Glance

• Fair Value Estimate: $80
• Morningstar Rating: 4 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: None

The SEC has filed charges against no-moat Coinbase COIN, accusing the firm of acting as an unregistered securities exchange, brokerage, and clearing agent. The regulator is also accusing Coinbase of issuing unregistered securities offerings through its staking service.

This development was not entirely unexpected, as Coinbase had already announced it had been served a Wells notice in March. Moreover, the SEC moved against rival Binance just the day prior. While the complaint was expected, this is still a material negative event for Coinbase, particularly given the breadth of the charges.

Staking is a small part of the firm’s overall revenue—less than 3% of total revenue in 2022 on a net basis—meaning the loss of this business line would have been a minor issue. However, the SEC’s accusation that Coinbase has been acting as an unregistered exchange, brokerage, and clearing agent covers the core of the company’s business. Coinbase has signaled that it intends to fight the charges. While we are not changing our $80 fair value estimate in response to the news, we highlight our Uncertainty Rating of Very High for investors, as the company will likely remain in regulatory limbo for the foreseeable future.