Coinbase has been on the rise in recent weeks, with its stock price nearly doubling in the days leading up to its direct listing on April 14th. However, the cryptocurrency exchange’s stock price plummeted recently after it disclosed that it had received a Wells notice from the U.S. Securities and Exchange Commission (SEC).
A Wells notice is used by the SEC to inform a company it is investigating the firm and could bring an enforcement action against it. It is not a formal enforcement action, but it does signal that the SEC is likely to take action. As a result, Coinbase’s stock price has dropped by nearly 15% since the announcement.
The SEC’s investigation revolves around Coinbase’s sale of security-based tokens in 2017 and 2018. These tokens were sold to US investors without registration. Coinbase claims that it believed these tokens did not qualify as securities, while the SEC is investigating whether they did.
The SEC’s investigation may have caught Coinbase off guard, as the exchange had recently received a letter of non-objection from the SEC earlier this year. In the letter, the regulator had accepted the digital asset exchanges’ request for a temporary exception from certain registration requirements. This could be why Coinbase’s stock price has dropped so drastically in response to the Wells notice.
The SEC’s investigation may not ruin Coinbase. The company has already taken steps to comply with certain regulations, and it has a number of high-powered lawyers on its side. However, the outcome of the investigation could nevertheless have profound implications for Coinbase and the cryptocurrency industry as a whole.
If the SEC levies any punitive action against Coinbase, it could set a dangerous precedent. Other exchanges may become concerned that they could face the same type of action, leading to an overall decrease in confidence in the cryptocurrency markets.
In the meantime, it remains to be seen what, if any, action the SEC will take against Coinbase. Until then, investors should be cautious when dealing with the cryptocurrency exchange’s stock.
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