S&P downgrades Coinbase rating after trading volume declines 30%

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S&P downgrades Coinbase rating after trading volume declines 30%

The recent quarterly report of Coinbase has led S&P Global Ratings to lower its long-term issuer credit rating to BB from BB with a negative outlook.

The rating agency said on Aug. 11 that weak earnings and competitive pressure on the exchange have weakened coverage ratios and that cyclical variations for Coinbase have increased beyond our expectations due to market share erosion and a higher risk of margin compression. S&P Global noted that Coinbase's poor second quarter reports could be traced back to increasing uncertainties in the market and rising competition. In the second quarter, Coinbase's trading volume declined by 30%, while overall trading volume for exchanges declined by only 3%.

Competitive risk has risen in the coin exchange sector, and Coinbase's market share fell in 2022, S&P Global noted.

The ongoing investigation by the SEC of the exchange further complicates the uncertainty affecting Coinbase's growth projections, according to the rating agency.

It recorded a net loss of $1.10 billion, while assets held on the exchange declined to $96 million. The trading volume declined by 30% when compared to the first quarter of $309 million, with only $217 million recorded in trading volume for the quarter.

The SEC is investigating the exchange for listing unregistered securities and offering high-growth staking and yield-generating products.

Two New York based law firms have filed a lawsuit claiming that Coinbase misled the public by failing to disclose its compliance policy and business activities as it relates to customers' assets.