Coinbase could benefit as crypto exchanges brace for regulatory scrutiny after FTX fallout, analysts say

Published Thu, Nov 10 20222:54 PM EST

The fall of crypto exchange FTX will likely bring regulatory scrutiny with it – and Coinbase may emerge as a winner, analysts say. Though everyone is still making sense of what some are calling "crypto's Lehman Brothers moment," two things are clear: A lack of regulatory oversight helped fuel this latest crisis, and greater scrutiny is coming to crypto exchanges. “We believe today's events could potentially accelerate regulatory scrutiny on these offshore exchanges on both a national and global basis," a team of Cowen analysts said in a note this week. "We continue to think that Binance and other offshore companies will be playing catchup as regulations roll out.” Coinbase , the largest exchange in the U.S. and the first to become a public company, stands to benefit from its commitment to compliance, they said. Retail trading will face several near-term headwinds in the aftermath of the FTX saga – lower crypto adoption, depressed prices, more regulatory scrutiny, potential FTX-related contagion. This will weigh on Coinbase's revenue, but the company is well positioned to handle regulatory changes, analysts said. “Longer term, we expect Coinbase to benefit from clear leadership in adherence to regulatory compliance,” Cowen said. The company “provides a unique competitive moat and structural advantage vs. top global competitors, many of which operate outside legal frameworks and have lack of transparency around their management and corporate practices," the firm said. "We view Coinbase as the most regulatory compliant crypto platform globally.” That sentiment was echoed by others on Wall Street this week. Citi’s Christopher Allen said that although the FTX calamity will have a negative effect on cryptocurrencies and opportunities within the industry, “it could create longer-term opportunities for regulated/trusted players.” Owen Lau at Oppenheimer lowered his price target on Coinbase shares, due to the expected loss in crypto adoption and trading volume, but he framed it as a challenge that the company will overcome as it continues to set an example for rivals. “We need more crypto companies using COIN's compliant and transparent model,” he said in a note this week. “Longer term, the industry will learn the lesson and move forward.” Calling for better regulation The industry was stunned this week by the sudden blowup of the popular FTX exchange, now on the brink of collapse, and the fall of its leader Sam Bankman-Fried . His empire quickly unraveled after a Coindesk report last week showed a large part of the balance sheet at his trading firm Alameda Research had been concentrated in FTX Token ( FTT ), the native token of the FTX platform. Afterward, Binance offloaded its holdings in FTT , which resulted in an effective run on FTX. Binance, which had previously planned to purchase FTX, walked away from the deal Wednesday. Crypto leaders, including Coinbase CEO Brian Armstrong, have been quick to point out the role that the lack of U.S. regulation played in the situation. In response to a tweet by Sen. Elizabeth Warren, D-Mass., in which she called for “more aggressive enforcement” by the Securities and Exchange Commission following the news, Armstrong highlighted the lack of regulatory clarity in the U.S. “FTX.com was an offshore exchange not regulated by the SEC. The problem is that the SEC failed to create regulatory clarity here in the US, so many American investors (and 95% of trading activity) went offshore,” he said . “Punishing US companies for this makes no sense.” Ripple CEO Brad Garlinghouse agreed, saying companies have no guidance on how to comply in the U.S. “Compare [the U.S.] with Singapore which has a licensing framework, token taxonomy laid out, and much more,” he said . “They can appropriately regulate crypto [because] they've done the work to define what ‘good’ looks like.”