Blockchain enthusiasts know Coinbase Global (NASDAQ:COIN) as a platform where people can buy and sell Bitcoin (BTC-USD) and other cryptocurrencies. The fate of COIN stock depends, to a large extent, on how the public perceives the crypto community.
Currently, the perception of this community isn’t very positive. As regulators crack down on crypto-related businesses, Coinbase’s investors may end up dumping their shares at lower and lower prices.
We can hope that this won’t be the unfortunate outcome of the FTX debacle. However, the outlook isn’t positive for businesses that are steeped in the world of digital assets. Of course, Coinbase is among the most crypto-centric companies listed on the Nasdaq exchange.
In other words, you can’t separate Coinbase from the broader cryptocurrency-market problems created by FTX. Like it or not, the FTX fiasco is drawing negative attention to Coinbase and other crypto exchanges. The conclusion here is practically unavoidable: You can save yourself a whole lot of trouble and just choose not to invest in Coinbase.
What’s Happening with COIN Stock?
If you need a textbook example of what a collapse looks like, just take a glance at COIN stock. It has declined from $250 to less than $50 this year, believe it or not.
Time and again, the perma-bulls have been wrong about Coinbase. Perhaps they should listen closely to Bloomberg Intelligence credit analyst David Havens, who describes Coinbase’s debt as a “canary in the coal mine.”
As far back as May, Coinbase reportedly declared that its clients could be “treated as general unsecured creditors,” Bloomberg reports, “if the company went bankrupt.” Coinbase didn’t necessarily use those exact words, but the prospect of potential bankruptcy should have been a red flag to all prospective investors.
Another red flag is Coinbase’s corporate bond prices. These bonds offer high yields, but their prices have cratered in 2022. One of Coinbase’s debt notes, shockingly enough, fell in value from 92 cents to roughly 53 cents on the dollar this year.
FTX’s Problems Will Likely Continue to Affect Coinbase
Meanwhile, the well-documented FTX disaster is bound to have ripple effects over the coming months. James Bromley, an attorney representing FTX’s new management, recently admitted that the company, which is in bankruptcy proceedings, was “run as a personal fiefdom of” former CEO Sam Bankman-Fried.
FTX was controlled by “inexperienced and unsophisticated individuals,” Bromley added. The plot continues to thicken – and none of this will help COIN stock, even if it’s not Coinbase’s fault.
Making matters worse for Coinbase, the company is now on the regulatory radar of someone on Capitol Hill. Specifically, U.S. Sen. Ron Wyden of Oregon is seeking “answers from the six largest cryptocurrency exchanges” – including Coinbase, of course – “on the risks consumers face when investing on their platforms.”
You can actually read Wyden’s letter to Coinbase CEO Brian Armstrong here. In it, the senator cites FTX’s downfall and poses not just one, but 13 tough questions for Armstrong. Hopefully, the CEO will submit his response by the stated due date, Dec. 12.
What You Can Do Now
Whether Coinbase played a direct role in FTX’s problems is immaterial at this point. What matters to investors is that Coinbase is associated with a cryptocurrency-exchange industry that has major public-relations issues.
Don’t be too surprised, then, if more people on Capitol Hill ask questions about Coinbase. That’s certainly not the kind of attention that a company would want. Thus, it’s wise to steer clear of the collateral damage in the crypto-exchange space and avoid COIN stock altogether.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.