Oppenheimer downgrades Coinbase, cites 'unhealthy regulatory climate' after Wells notice

Published Thu, Mar 23 20236:22 AM EDT

It's time to move to the sidelines on Coinbase Global , according to Oppenheimer. Analyst Owen Lau downgraded the cryptocurrency exchange platform to perform from outperform, and removed his $70 price target, citing troubling regulatory signals for the digital asset sector following the collapse of Silicon Valley Bank and Signature Bank and other banks. The downgrade comes after U.S. Securities and Exchange Commission slapped Coinbase with a Wells notice, saying it's identified possible violations of U.S. securities law . It also comes after the White House "strongly criticized" the digital asset sector this month . "While we remain highly supportive of blockchain/digital asset development in the US, under this unhealthy regulatory climate, we are increasingly worried about the fairness of the enforcement actions, and the ability for the ecosystem to grow with seemingly limited and shrinking support from the banking system in the US," Lau wrote Thursday. Coinbase shares surged nearly 118% in 2023, far outstripping the 3% gain in the S & P 500 over the same time period. The stock dropped 11% in Thursday premarket trading. COIN 1D mountain Coinbase shares 1-day However, Lau said digital asset firms face a challenging path toward broader acceptance at the White House. After attending a DC event and meeting with staff members at Congress, the analyst said cryptocurrencies could be "scapegoated" for the collapse of banks that specialized in lending to the industry. Still, the analyst expects the rise in volatility could mean a "binary outcome" for Coinbase. "Recent strength in Bitcoin indicates that people have called for alternative financial systems, but it could also become the victim of its success," Lau wrote. "While we downgrade Coinbase shares, we believe both upside opportunities and downside risk have increased substantially, and we may find an attractive risk/reward entry point in the future." Other analysts commented on Coinbase following the Wells notice. Mizuho Securities' Dan Dolev reiterated an underperform rating on Coinbase, saying the Wells notice is a "significant overhang" of the stock in his view. The notice could affect roughly one-third of Coinbase's revenue, according to the note. Trevor Williams of Jefferies, who has a hold rating on Coinbase, called the Wells notice an "ominous sign" that is "a likely precursor to an enforcement action." Of note, revenue from alternative coin trading and staking could be impacted. —CNBC's Michael Bloom contributed to this report.