· 1 min read

Analysts Caution Coinbase Faces Significant Regulatory Pressure Despite Ripple's Court Win

Source: AdobeStock / gguy

The major US-based crypto exchange Coinbase is still facing pressure from the Securities and Exchange Commission (SEC), despite the recent win in court for Ripple.

According to a new report from investment firm Berenberg Capital, Coinbase’s “Earn” program is now particularly vulnerable to regulatory action, given that the staking rewards offered as part of the program could fall under securities rules.

“Coinbase Earn, the securitized product through which COIN offers staking rewards to retail customers, appears particularly vulnerable to being defined as a security within this context,” the report said.

The regulatory difficulties faced by the company have the potential to disrupt the current rally for the Coinbase stock, the report warned.

Since reaching a low of $46.43 on June 6, the Coinbase stock (ticker code: COIN) has now rallied about 124% to $105.55.

COIN stock price year-to-date. Source: TradingView

The warning in the report comes as a surprise given Ripple’s court win from last week, when a US District Court ruled that the XRP token is “not in and of itself” a security for regulatory purposes.

However, the ruling also made clear that the token may be classified as a security when used in certain activities.

An example of such an activity could for example be staking, which is why Berenberg is now sounding the alarm over Coinbase Earn.

Staking is the activity of locking up certain tokens in order to receive rewards paid out at regular intervals, an activity that some have compared to receiving dividends from stocks in the world of traditional finance.

Crypto exchanges in the US are generally not allowed to offer tokens for trading if they are deemed securities, and doing so would make the venue an unregistered securities exchange, exactly what the SEC has accused Binance.US of being.

Despite the mixed signals in the ruling, it has already led Coinbase and fellow US-based exchanges Kraken, Gemini and Crypto.com to announce they would again list XRP for trading, after delisting it in early 2021 over regulatory concerns.

The latest warning from Berenberg about Coinbase come after the same firm in June said the COIN stock had become "uninvestable" in the short term due to the lawsuit filed by the SEC.

The lawsuit could, if successful, result in the complete closure of Coinbase's core business in the United States, the firm warned at the time.