If you stay invested in Coinbase Global (NASDAQ:COIN), you’re indirectly involved in a fight against the Security and Exchange Commission (SEC) and its Chairman, Gary Gensler (or, as I like to call him, Gary Gunslinger). He just made it crystal clear that he’ll wage war against crypto companies like Coinbase until the bitter end. So, I am neutral on Coinbase stock even though I like what cryptocurrency and the blockchain stand for generally.
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Delaware-headquartered Coinbase operates a popular cryptocurrency trading platform. Many young financial traders are enamored with Coinbase, but some old-school traditionalists in high government positions might not be so fond of Coinbase and the crypto coins that trade on its platform.
Almost exactly a year ago, I warned people to tread carefully with COIN stock. With anything cryptocurrency-related, volatility is the name of the game, and Coinbase stock is likely to make fast and dangerous moves now that the Gunslinger in Washington is on the warpath.
The SEC Takes on Crypto and Coinbase
Back in March, U.S. President Joseph Biden issued an executive order requiring the government to examine cryptocurrencies’ risks and benefits. However, since the infamous collapse of crypto exchange FTX, lawmakers and regulators have mainly focused on cryptocurrencies’ risks and rarely acknowledged their benefits.
Clearly, Gensler has taken Biden’s mandate seriously, almost to the point of obsession. I’ve always had a hunch that Gensler wasn’t a huge fan of bitcoin (BTC-USD) and cryptocurrency in general, but now I have concrete evidence, as the SEC Chairman just declared, “Look, we don’t need more digital currency… We already have digital currency. It’s called the U.S. dollar.”
An SEC Chairman isn’t going to come out and say that he hates cryptocurrency, but Gensler isn’t mincing words here. Gensler’s preference for traditional assets and disdain for Coinbase was evident when he asserted, “These trading platforms, they call themselves exchanges, are commingling a number of functions… In traditional finance, we don’t see the New York Stock Exchange also operating a hedge fund making markets.”
Coinbase is in Gensler’s Crosshairs
Perhaps it shouldn’t have been too surprising, then, when the SEC recently sued crypto exchange and Coinbase rival Binance (BNB-USD). In the wake of the SEC’s 13 securities violations leveled against Binance and its founder, Changpeng Zhao, Binance reportedly experienced nearly $800 million worth of investor withdrawals/outflows.
COIN stock dropped on the Binance news as financial traders feared that whatever happens to Binance today could happen to Coinbase tomorrow. Their fears were proven to be accurate, as the SEC is now suing Coinbase, alleging that it’s operating as an unregistered broker and exchange.
The charges are serious, to put it mildly. According to the SEC, Coinbase “has for years defied the regulatory structures and evaded the disclosure requirements” of securities laws in the U.S. Moreover, the SEC alleges that Coinbase is unlawfully facilitating the trade of at least 13 “crypto asset securities,” though many blockchain aficionados would contend that cryptocurrencies are currencies or commodities rather than securities.
Consequently, the SEC is now demanding that Coinbase must be “permanently restrained and enjoined” from engaging in these allegedly unlawful activities. Of course, Coinbase would be in dire financial straits if it stopped facilitating the purchase and sale of its listed “crypto asset securities.”
I love a bargain as much as anyone, and I generally support the idea of decentralized finance. However, if there’s a more important financial principle than “Buy low and sell high,” it’s “Don’t fight the government and expect to win.” In the case of COIN stock, if you hold it now, then you’re effectively siding with Coinbase over Gensler and the SEC, and the government can likely outlast Coinbase in a legal battle.
Is COIN Stock a Buy, According to Analysts?
Turning to Wall Street, COIN stock is a Hold based on eight Buys, eight Holds, and seven Sell ratings assigned in the past three months. The average Coinbase Global stock price target is $59.75, implying 12.4% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell COIN stock, the most accurate analyst covering the stock (on a one-year timeframe) is Patrick O’Shaughnessy of Raymond James, with an average return of 40.18% per rating and an 82% success rate. Click on the image below to learn more.
Conclusion: Should You Consider COIN Stock?
At this point, valuation metrics and technical stock levels aren’t as impactful as Coinbase’s legal woes. I might eventually change my neutral-at-best-outlook on Coinbase, but there would have to be a positive development in the news first.
Until then, it seems wise to maintain a safe distance from COIN stock. You can keep tabs on the war between Coinbase and the Gunslinger (and enjoy it like an old Western movie) without putting your investable capital at undue risk now.
