For Coinbase (NASDAQ:COIN) and Coinbase stock, the signs of impending doom could hardly be stronger or more obvious. The Securities and Exchange Commission has crippled other crypto exchanges that, like Coinbase, have defied it, and the agency has issued multiple warnings that it will take similar steps against Coinbase. Through many actions and statements, the Biden administration has shown that it views crypto as unacceptably risky, and courts have always upheld the punishments that the SEC has inflicted against crypto exchanges.
Moreover, even before the SEC officially starts its battle with COIN, most investors (or speculators, depending on your point of view) have lost faith in crypto, causing COIN to report dismal financial results and transaction data. And if all of the preceding information isn’t enough to convince you that Coinbase is heading for a bad ending, consider that even Coinbase’s CEO, Brian Armstrong, apparently isn’t very optimistic about the outlook of COIN stock, as he’s sold tens of thousands of shares of the company in 2023.
Here’s more information about each of the four main reasons that COIN stock looks to be doomed.
The SEC Is Out to Get Coinbase
The SEC has informed Coinbase, through the issuance of a Wells notice, that the agency’s staff has recommended that it take formal legal against the company.
The SEC has repeatedly stated that COIN and its peers,”by [not] registering as securities exchanges,” are violating the law, as The Wall Street Journal recently explained.
And the SEC has already dealt harshly with several COIN’s competitors that defied the agency’s warning about this issue. For example, the SEC sued another crypto exchange, Kraken, for failing to register its staking offering as a security, and Kraken ultimately had to shut down the service. As I reported in a recent, previous column, staking is generating a significant amount of COIN’s revenue.
In January, the agency dealt even more harshly with two other crypto exchanges, Genesis Global and Gemini Tryst, officially accusing them of carrying out ” the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.”
Ominously, the agency added, “Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.”
And boding very badly for Coinbase and COIN stock, on March 23, the SEC warned investors that crypto platforms “may not be complying with applicable law, including federal securities law.” and that many of these platforms, in the words of Business Insider may “be at risk.” In my view, that sounds like the agency was basically telling investors to get their crypto out of Coinbase, the largest crypto trading platform because it’s about to be crushed by Washington.
Other Biden Administration Officials Will Not Help Coinbase
Suppose Gary Gensler’s SEC was targeting crypto exchanges. In that case, while no other senior figure in the administrations had expressed an opinion on the matter or some senior officials were defending crypto, Coinbase may be able to emerge from its current situation unscathed.
But Treasury Secretary Janet Yellen has repeatedly warned about the risks of crypto, while the FDIC and the Federal Reserve have told banks to avoid getting involved in crypto. (Incidentally, the fact that no banks provide funds to the crypto sector has created its own acute dangers for the crypto space). Moreover, I have yet to hear of any senior Biden administration official defending cryptos. Therefore, the chances of any official or department coming to COIN’s rescue are extraordinarily low.
Coinbase has said it’s eager to take on the SEC in court. But its chances of winning in court seem very low.
That’s because, according to John Reed Stark, a former SEC official, “in the 130+ crypto-related enforcement actions already filed by the SEC, the SEC has not lost a single case.”
The Crypto Sector and Coinbase Have Already Lost Most Consumers’ Trust
After cryptos tumbled tremendously last year, showing that they are extremely unstable and not a good hedge against inflation, most of the public has an unfavorable view of cryptos. Further undermining cryptos’ image, the collapse and alleged wrongdoing of another large crypto exchange, FTX, have also caused cryptos’ reputation to nosedive.
Given these points, it’s unsurprising that Coinbase’s financial results and transaction volume tumbled last quarter. Its revenue sank to $605 million from $2.49 billion during the same quarter a year earlier, and its trading volume tumbled to $145 billion from $547 billion.
The CEO Appears to Have Lost Faith in COIN Stock
According to my calculations, Armstrong, COIN’s CEO and co-founder, unloaded over 73,000 shares of COIN stock in 2023. Most of the share sales had come immediately before he was awarded the same number of shares at no cost. For example, on Jan. 4, he sold 14,866 shares for $35.12 per share and then was awarded 14.,866 shares at no cost. Still, the fact that he’s selling so many shares rather than holding onto all or most of them suggests that he lacks confidence in the company’s outlook.
Since the Biden administration is obviously out to get the company, his lack of faith makes a great deal of sense.
As of the date of publication, Larry Ramer was short COIN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.