Coinbase falls after US SEC threatens to sue over some crypto products

FILE PHOTO: A representation of the cryptocurrency is seen in front of Coinbase logo in this illustration taken, March 4, 2022. REUTERS/Dado Ruvic/Illustration

(Reuters) - Shares of Coinbase Global Inc fell 15% in afternoon trading on Thursday after the U.S. Securities and Exchange Commission threatened to sue the crypto exchange over certain products.

Global regulators are keeping a close watch on the crypto world after a string of high-profile collapses wiped out more than a trillion dollars from the digital assets industry's market capitalization last year.

Bitcoin prices tumble as crypto market shocks weigh Bitcoin prices tumble as crypto market shocks weigh,

"This news illustrates the regulatory headwinds and uncertainty facing the crypto industry in the U.S. under the current administration," said analysts at BofA Global Research.

Brokerage KBW's analysts said in a note that the SEC serving Coinbase with a Wells notice was expected, and that the move will likely create an overhang on the crypto exchange's stock.

The company's shares were battered last year in a sector-wide rout, losing about 86% of their value.

Coinbase shares log broad declines amid industry-wide downturn,

The potential enforcement action by the SEC is likely to be tied to aspects of Coinbase's spot market as well as its staking service Earn, Prime and Wallet products, the company said.

Staking is a process in which cryptocurrency holders volunteer to take part in validating transactions on the blockchain. These products often offer customers eye-popping yields.

"We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so," Coinbase said.

Meanwhile, analysts at TD Cowen said the only way to get clarity on how the law applies to crypto solutions is through litigation.

Last month, Coinbase swung to a fourth-quarter loss as trading volumes at the crypto exchange came under pressure from an industry-wide downturn. It slashed 20% of its workforce, or about 950 jobs, as part of a restructuring plan earlier this year.

(Reporting by Manya Saini in Bengaluru; Editing by Shinjini Ganguli and Devika Syamnath)

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