Shares of America’s largest cryptocurrency exchange Coinbase Global (NASDAQ:COIN) plunged nearly 16% in extended trading on March 22, on news of receiving a “Wells notice” from the Securities and Exchange Commission (SEC). The notice warns Coinbase of the possible enforcement action against the crypto exchange for a potential violation of securities law.
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The SEC has been chasing several crypto companies and stating that many products and tokens offered by exchanges are securities and must be registered with the regulator as stocks. The Wells notice sent to Coinbase is targeted at the assets listed on the exchange, as well as its Coinbase Earn staking service, Coinbase Prime, and Coinbase Wallet service.
Both Coinbase CEO Brian Armstrong and Chief Legal Officer Paul Grewal stated that the company is open to a legal process if an amicable resolution is not reached. They also maintained their stance that the tokens are not securities and that their staking process is different from those used by other exchanges.
A company blog read, “Rest assured, Coinbase products and services continue to operate as usual – today’s news does not require any changes to our current products or services.”
What Is a Wells Notice?
A Wells notice is typically given at the end of an initial investigation. In response, the company can justify its stance against the SEC’s claims, after which either a court ruling starts or they settle with fines. Not all Wells notices end up in court action if the company can justify itself thoroughly.
Under SEC Chair Gary Gensler, the watchdog has been hustling against crypto firms systematically after the collapse of big names like Sam Bankman Fried’s FTX. The SEC aims to advocate for investor-protection laws and is targeting companies or individuals they believe have violated them. SEC’s win against Coinbase would prove its stronghold over crypto. On the other hand, Coinbase’s win will demonstrate the SEC’s unfair ruling over digital assets that should not be subject to securities laws.
What Is the Future of COIN Stock?
Owing to the market uncertainty and the crypto rout, analysts currently have a Hold consensus rating on Coinbase. This is based on eight Buys, eight Holds, and six Sell ratings. Also, the average Coinbase Global price target of $60.90 implies 21% downside potential from current levels, as the COIN stock has already zoomed 129% so far in 2023.
