As if Coinbase (NASDAQ:COIN) stock wasn’t already in a tight spot, today’s news emphasizes that the company has its back to the regulatory wall. One of the world’s largest crypto exchanges, Coinbase is preparing to take drastic measures if regulators seek to undermine its fundamental use cases. CEO Brian Armstrong made comments this week that lay out just how things will go if government officials threaten the company.
Coinbase is a powerhouse in the crypto industry. At this point, it’s a household name; most anybody with at least a loose understanding of crypto knows about it. Many stock investors with no interest in crypto still know COIN as the only publicly traded exchange stock. Many crypto investors themselves — both new and old to the market — also rely on Coinbase to make trades. As the bear market threatens to drag on, Coinbase is still seeing $1.4 billion in assets traded on its floor today.
As the U.S. government starts flexing its muscles toward this largely unregulated industry, though, Coinbase is a prime target. In the last few months, a string of bad news has plagued the company. For starters, the market crash brought about some poor earnings. The company’s second-quarter net loss of $1.1 billion was underscored by a massive lay0ff; Coinbase pared down 18% of its workforce. Earnings per share (EPS) losses were far worse than expected as well, coming in at $4.98 against predictions of $2.65 per share.
Naturally, these earnings aren’t exclusive to Coinbase — companies across the crypto market are feeling the same pain. What they aren’t feeling, though, are multiple probes by the U.S. Securities & Exchange Commission (SEC). The first investigation is delving into whether Coinbase conducted nine different unregistered securities offerings. The second, more recent probe delves into the company’s staking mechanism.
Coinbase Threatens to Throw Out Staking in Wake of Regulatory Scrutiny
As the SEC scrutinizes Coinbase, CEO Brian Armstrong is letting the industry know just how he feels. The executive recently commented on some other recent decisions made by the U.S. government. Armstrong says he’d rather shut down certain products than limit users’ freedoms.
One key piece of news circulating the crypto space right now is the U.S. Treasury’s decision to sanction crypto mixing service Tornado Cash. Additionally, a developer for the project has been arrested in the Netherlands. According to the Treasury, this sanction comes largely because Tornado Cash enabled money laundering. By mixing crypto from a grip of different sources and redistributing it, authorities have a much harder time tracking the movement of digital assets.
Armstrong is obviously fed up with the probes into his own company. And, he sees these recent sanctions as a clear-cut case of government censorship. Now, as the Ethereum (ETH-USD) Merge upgrade approaches, some have begun to point out that Treasury guidelines established by the sanctions will greatly hinder the validation process on the upgraded network.
So, the CEO is weighing in on the possibility of regulators asking Coinbase not to validate Tornado Cash-related transactions. Armstrong said that, if it comes down to that, he would shut down Coinbase’s Ethereum staking service before complying with regulators.
This is a major declaration. As Decrypt points out, Coinbase just got a major upgrade from JPMorgan. However, much of the justification for the upgrade relies on the Merge bringing in lots of money via staking. So, while investors are cheering on Armstrong’s words, the statement also presents a big potential detriment to Coinbase’s balance sheet during an already difficult time.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
