According to S&P Global Market Intelligence, Coinbase Global (NASDAQ:COIN) shares fell 12.2 percent in September.
The stock is associated with cryptocurrency values, which declined during the month, and the business announced that the Securities and Exchange Commission (SEC) would sue if it began its new stablecoin lending scheme.
Furthermore, broad market indices fell in September, with the S&P 500 index falling roughly 5% during the month. This is likely to have compounded Coinbase’s stock drop.
A stablecoin is a cryptocurrency that is backed by a reserve currency, often a fiat currency such as the US dollar. This means that if you buy stablecoins, you can theoretically convert them back to US dollars at any time.
Coinbase, being one of the world’s top crypto firms, collaborated with Circle to launch a stablecoin dubbed USD Coin (USDC). There are presently 31.2 billion USDC in circulation, which means that the stablecoin has been exchanged for $31.2 billion (in US dollars).
What does this have to do with Coinbase stock and the Securities and Exchange Commission? To make money, Coinbase planned to provide USDC owners the chance to lend their stablecoins to Coinbase, paying them a 4% annual interest rate (eight times the national average) if they participated in the lending operation.
Coinbase may profit from this since other crypto traders (or really anyone looking for a loan) are ready to pay higher interest rates to have USDC leased to them by Coinbase.
When Coinbase approached the SEC about launching the lending service, the regulator issued the business a Wells notice, which implies the regulator intends to sue Coinbase if the product is launched.
With nearly $5.5 billion in planned revenues this year, Coinbase’s operations will not be affected by the SEC investigation. It does, however, imply that the government may become more aggressive in cracking down on any new projects the corporation has, which could hamper its potential to grow over the next decade.
In other news, popular cryptocurrencies such as Bitcoin (CRYPTO:BTC) dropped in value last month. At the start of December, the coin was worth over $50,000, but by the end of the month, it had dropped to around $40,000.
Coinbase owns Bitcoin and makes money through cryptocurrency exchanges, therefore its stock tends to correspond with any significant movements in the cryptocurrency market.
This announcement from the SEC and Coinbase will not devastate the company’s existing operations, but it raises the possibility that the SEC will crackdown on the company’s potential expansion options.
If you believe that the crypto business is the future of finance, these regulatory issues should be considered, as they may have an impact on Coinbase’s stock in the long run.
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