Credit rating agency Moody’s has downgraded its Coinbase Corporate Family Ratings (CFR) and guaranteed unsecured preferred bonds on the crypto exchange, leaving both ratings under consideration for further downgrades.
Moody’s rating, CFR, has been downgraded from Ba2 to Ba3, which is considered non-investment grade, reflecting Moody’s view of a company’s ability to meet its debt.
Unsecured preferred bonds are bonds held by a company that are not backed by assets and must be repaid in preference to others if they go bankrupt. Moody’s downgraded Coinbase’s rating from Ba1 to Ba2.
Grounds for downgradeMoody’s pointed out that the Coinbase revenue model is “tied to transaction volume, per-user trading activity, and overall crypto asset prices.” The plunge in cryptocurrency prices over the past few months has slowed clients’ trading activity, resulting in lower revenues and cash flow for the company.
The opaque environment forced Coinbase to lay off about 18% on June 14. But even with this move, Moody’s expects Coinbase’s profitability to be “continuing tough in the current environment.”
Moody’s also said that if cryptocurrency prices continue to fall and exchange trading volumes decline further, they may demand further downgrades. He also looks at the company’s ability to cut costs, not only its ability to retain talent, but also the potential “advancement of crypto asset regulation.”
Moody’s said that if Coinbase can generate profits even in bear markets and diversify its profits in other flows that are not related to transactions or cryptocurrency prices, it may raise Coinbase’s rating again in the future. In the first quarter of 2022, it also points out that cryptocurrency transaction-based revenue accounts for 87% of Coinbase’s net revenue.
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