Coinbase Global Inc.

The negative outlook indicates continued uncertainties about the depth and duration of the crypto market downturn, insufficient visibility around the path of trading volumes, and heightened regulatory risk. We could lower the ratings by at least one notch over the next 12 months if: Cash burn in the coming quarters materially exceeds our base-case expectations, for example, because trading volumes remain more depressed than we expect in response to materially worse industry conditions; Increased regulation proves disruptive for the company's business model; or The credit risk profile were to weaken relative to similarly rated peers, contrary to our current expectations. We could revise the outlook to stable if we see signs of a sustained improvement in trading volumes on Coinbase's

...Regulatory risks remain exacerbated for Coinbase, in our view. In June, the SEC sued Coinbase, alleging that the company operated an unregistered exchange, broker, and clearing agency, depriving investors of significant protections. Two contrasting outcomes from recent court cases show the continuing uncertainty regarding the classification of certain listed crypto assets as securities. If Coinbase is required to delist all crypto assets except bitcoin and ethereum, we estimate the company would be at risk of losing less than 20% of its total revenue. Coinbase is seeking a dismissal of the lawsuit, but it remains unclear whether these efforts will be successful. We believe weak transaction volumes and continued erosion of USDC market capitalization pose headwinds for the rating. Trading volumes declined by 17% from the previous quarter in the third quarter of 2023, translating into lower transaction revenue. While USDC market capitalization has trended down since the collapse of Silicon...

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