Coinbase could benefit from crypto exchanges bracing for scrutiny, analysts say
by Arthur · November 10, 2022
The fall of crypto exchange FTX is likely to lead to regulatory scrutiny — and Coinbase could emerge as a winner, analysts say. While everyone is still coming to grips with what some are calling “crypto’s Lehman Brothers moment,” two things are clear: A lack of regulatory oversight helped fuel this latest crisis, and crypto exchanges are being scrutinized more. “We believe today’s events could potentially accelerate regulatory scrutiny of these offshore exchanges on both a domestic and global basis,” a team of Cowen analysts said in a note this week. “We continue to believe that Binance and other offshore companies will play catchup as regulations roll out.” Coinbase, the largest exchange in the United States and the first to become a public company, will benefit from its commitment to compliance, they said. Retail will face several headwinds in the short term in the wake of the FTX saga – lower crypto adoption, depressed prices, more regulatory scrutiny, potential FTX-related contagion. This will weigh on Coinbase’s earnings, but the company is well positioned to handle regulatory changes, analysts said. “Longer term, we expect Coinbase to benefit from clear leadership in regulatory compliance,” Cowen said. The company “provides a unique competitive moat and structural advantages versus top global competitors, many of which operate outside legal frameworks and lack transparency about their management and corporate practices,” the firm said. “We see Coinbase as the most regulatory compliant business. crypto platform globally.” That sentiment was echoed by others on Wall Street this week. Citi’s Christopher Allen said that while the FTX disaster will have a negative effect on cryptocurrencies and opportunities within the industry, “it may create long-term opportunities for regulated/trusted players.” Oppenheimer’s Owen Lau lowered his price target on Coinbase shares due to the expected loss in crypto adoption and trading volume, but he framed it as a challenge the company will overcome as it continues to set an example for rivals. “We need more crypto companies using COIN’s compliant and transparent model,” he said in a note this week. “Longer term, the industry will learn its lesson and move on.” Calls for better regulation The industry was stunned this week by the sudden explosion of the popular FTX exchange, now on the brink of collapse, and the fall of its leader Sam Bankman-Fried. His empire quickly unraveled after a Coindesk report last week revealed that a large portion of the balance of his trading company Alameda Research had been concentrated in the FTX Token (FTT), the original token of the FTX platform. Afterwards, Binance unloaded its holdings in FTT, resulting in an effective run on FTX. Binance, which had previously planned to buy FTX, walked away from the deal on Wednesday. Crypto executives, including Coinbase CEO Brian Armstrong, have been quick to point out the role that the lack of US regulation played in the situation. Responding to a tweet by Sen. Elizabeth Warren, D-Mass., calling for “more aggressive enforcement” by the Securities and Exchange Commission following the news, Armstrong highlighted the lack of regulatory clarity in the U.S. “FTX.com was an offshore exchange that is not regulated by the SEC. The problem is that the SEC failed to create regulatory clarity here in the U.S., so many U.S. investors (and 95% of trading activity) went offshore,” he said. “Punishing U.S. companies for this makes no sense.” Ripple CEO Brad Garlinghouse agreed, saying companies have no guidance on how to comply in the U.S. “Compare [the U.S.] with Singapore having a licensing framework, token taxonomy laid out and much more,” he said. “They can appropriately regulate crypto [because] they have done the work of defining what ‘good’ looks like.”
