S&P Global downgrades Coinbase credit rating for weak Q2 earnings, competitive pressures

Major American cryptocurrency exchange Coinbase saw its long-lasting company credit rating devalued from BB+ to BB status by rating company S&P Global following its newest earnings report this year.

The company verified the downgrade in a note on Aug. 11, pointing towards Coinbase’s weaker efficiency in the 2nd quarter of 2022 as a driving aspect. Intensified competitive threat in the cryptocurrency exchange sector was likewise highlighted, with Coinbase losing market share to rivals this year.

“The negative outlook reflects uncertainties about the duration of the crypto market downturn and the company’s ability to operate efficiently by managing operating expenses prudently.”

The downgrade likewise showed the prospective for ‘further market share deterioration’ driven by the competitive landscape and regulative threat. The rating company kept in mind that overall trading volume at Coinbase decreased 30% quarter on quarter, while overall cryptocurrency area trading volume throughout all places decreased just 3%, resulting in a lower market share.

The note yielded that area trading has actually ended up being more focused amongst market-makers and high-frequency trading companies, of which Coinbase has a far smaller sized market share.

The continuous cryptocurrency bearishness has actually likewise left its mark, with S&P Global highlighting overall possessions on Coinbase decreasing 63% to $96 billion from the very first quarter, which has actually been driven by weakened cryptocurrency worths and net outflows from institutional customers.

Related: Coinbase posts $1.1B loss in Q2 on ‘fast and furious’ crypto slump

Binance’s transfer to eliminate its Bitcoin trading costs all over the world likewise led the rating company to think that Coinbase might be required to evaluate its own cost structures which stays a significant earnings source for the business:

“We believe higher trading fees at Coinbase compared with peers, combined with such aggressive pricing actions by competitors, could increase the risk of fee compression in its retail channel (which generated about 80% of the company’s total revenues in the first half of 2022).”

Regulatory pressures are likewise an issue, with Coinbase under the analysis of continuous examinations into its staking programs and category of different noted cryptocurrency tokens. A previous Coinbase staff member was likewise charged with securities scams by the U.S. SEC in July 2022, putting the exchange even more under the microscopic lense.

Despite the downgrade, S&P Global anticipates Coinbase to keep ‘low overall risk’ in spite of macro elements that have actually intensified the current cryptocurrency market slump.