Coinbase's Credit Rating Gets Cut by S&P, Which Warns Crypto Winter Might Prompt More Reductions

In an already difficult week, Coinbase (COIN) suffered another knock as S&P Global Ratings cut the cryptocurrency exchange's credit rating and warned further reductions are possible given that crypto winter could linger.

S&P ratcheted down Coinbase's long-term issuer credit rating and senior unsecured debt ratings to BB from BB+ on Thursday, citing "weak earnings and competitive pressure."

Coinbase sold about $2 billion of junk-rated bonds last year, a sign of Wall Street's warmer embrace of crypto. Since then, crypto prices – and Coinbase's stock price – have fallen dramatically and pressure on the company to control costs has increased.

S&P now has a "negative" outlook for Coinbase's ratings, meaning the agency might announce more cuts.

"Competitive risk has intensified in the crypto exchange sector, with the company's market share decreasing this year," S&P wrote. The more dire assessment reflects "uncertainties about the duration of the crypto market downturn," questions around Coinbase's ability to manage costs and "the potential for further market share deterioration amid a challenging competitive landscape as well as heightened regulatory risk."

Coinbase shares closed Thursday at $84 per share, down more than 10% for the day. Its shares reached a high of over $350 last fall.

S&P's note comes two days after Coinbase reported a nearly 30% decline in trading volume from $309 million in the first three months of 2022 to $217 million in its second quarter, and missed consensus revenue expectations. The exchange posted a net loss of $1.1 billion during the quarter, versus a $430 million loss in the first quarter.

In its quarterly report, Coinbase disclosed that it is under investigation by U.S. securities regulators over its token listing processes as well as its staking programs and yield-generating products.