August 1, 2023 at 17:04 GMTModified date: August 1, 2023 at 17:04 GMT
August 1, 2023 at 17:04 GMT

COIN ‘uninvestable’ as SEC defense in trouble: Berenberg

A new report from Berenberg said that Coinbase could be in trouble with its current lawsuit with the SEC, after a New York Judge rejected the Ripple ruling.

COIN ‘uninvestable’ as SEC defense in trouble: Berenberg

The Coinbase share price has taken a hit, as a rejection of the Ripple ruling could have implications in its current lawsuit with the US Securities and Exchange Commission.

A new report from the Berenberg bank noted that the COIN stock is currently “uninvestable”, according to CoinDesk.

In the case against Terraform Labs, creators of the crashed LUNA cryptocurrency, New York Judge Jed Rakoff rejected their use of the ruling that XRP was a security. The rejection means Terraform is unable to use this case in its defense. 

“In his ruling, U.S. District Judge Jed Rakoff of the Southern District of New York rejected Judge Torres’ distinction between institutional sales and sales to retail investors on crypto exchanges, which he characterized as a misinterpretation of the Howey test used to determine if an asset is a security,” analysts led by Mark Palmer wrote.

The Howey Test is a US Supreme Court case that can be used to tell whether a transaction is an investment contract, and should therefore be classed as a security. 

This could cause complications for Coinbase as the crypto exchange is using the Ripple ruling in its current lawsuit from the SEC. The commission alleged that Coinbase operated as an unregistered securities exchange and broker. 

COIN share movements

Coinbase’s shares rallied in the wake of the Judge Analisa Torres’s ruling that XRP is not a security and as such Ripple Labs did not violate the securities laws.

COIN surged at the end of June 2023 and to a high of $109 on 13 July, the day the Ripple ruling was made. 

However, since the ruling rejection in the Terraform Labs case, COIN has taken a dip. As of 1 August, it is trading at $90. 

Coinbase told to stop crypto trading

The SEC launched its lawsuit against the cryptocurrency exchange in June 2023. 

“According to the SEC’s complaint, since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities,” the press release said.

But it was recently revealed that prior to this filing Coinbase was told to stop trading all of its digital assets except for Bitcoin, according to the Financial Times. The SEC requested the exchange to stop trading more than 200 tokens.

Brian Armstrong, CEO and founder of Coinbase, told the FT: “We really didn’t have a choice at that point, delisting every asset other than bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US.”

This could have set precedent that would compromise most of the cryptocurrency businesses operating in the US jurisdiction, classifying them as unlawful unless registered with the SEC.

More defense problems for Coinbase

Another defense being used by Coinbase has been noted as inefficient in the recent Berenberg report. The crypto exchange is arguing that the SEC’s case is against the “major questions doctrine”.

This doctrine prevents agencies, like the SEC, from stepping outside of their mandate. Terraform Labs used this doctrine as a defense in its current case with the SEC. But it has also been rejected by Judge Rakoff. 

The decision from the New York judge could mean another set back for Coinbase and potentially see a blow to its defense. 

Berenberg’s COIN analysis 

In Berenberg’s recent report, it gave COIN stocks a hold rating. The target price for the exchange was $39, more than 50% less than its current worth.

The bank described the shares as “uninvestable” in the short term.  

This report comes as Coinbase is expected to publish its second quarter earnings on Thursday, 3 August.