MOODY’S COINBASE FURTHER DECLINE WON’T ALLOW TO RAISE EVEN IN BEAR MARKET
Moody’s credit rating agency lowered the Business Family Rate (CFR) and confirmed the high level of unsecured crypto exchange Coinbase, and said both rates have been put under review to further reduce it.
CFR, a measure allocated to reflect Moody's vision of the company's ability to fulfill its financial obligations, was downgraded from Ba2 to Ba3 which is considered below the investment range.
Higher unsecured notes are the type of debt that a company has that can not be supported by any asset and in the event of a collapse it must be repaid before any other. Moody’s reduced Coinbase’s from Ba1 to Ba2.
Earlier in May, Cointelegraph reported Coinbase junk tanked bonds in response to the first quarter low and since that report, bonds have continued to fall by 9.5%.
Based on its downtime, Moody's revenue model highlighting Coinbase is "tied to trading prices, transaction per user activity and crypto asset prices." It said the sharp decline in crypto prices in recent months had reduced customer service activity, resulting in weak revenue and a slower cash flow in the company.
The uncertain environment forced Coinbase to lay off about 18% of its employees on June 14. But even at this rate, Moody's said he expected Coinbase's profits to "remain a challenge in the current environment".
Customer competition has also intensified in the United States after Binance.US began offering Bitcoin (BTC) zero trading platforms. The offer follows in the footsteps of Robinhood trading platform which pioneered no-commission crypto-trading in 2018.
In an effort to attract users to the platform, on June 23 Coinbase added five new Ethereum (ETH) ERC-20 tokens and users' ability to send and receive other goods to the Polygon (MATIC) and USD Coin (USDC) network at Solana (SOL).
Moody's said it may ask for further reductions if crypto prices continue to decline and if trading prices remain the same or fall further. It will also look at whether the company can reduce costs, its ability to retain talent and potential “crypto asset management” developments.
The valuation agency added that Coinbase rates could be improved again in the future if it could generate profits even during the bear market and split its currency into other streams that could be associated with trading prices and cryptocurrency, noting that crypto-transaction revenue represents 87 % of total Coinbase revenue in Q1 2022.