Bank of America Downgrades Coinbase Stock to Neutral, COIN Down 7%

Bank of America today said it is downgrading the stock of U.S. cryptocurrency exchange Coinbase from buy to neutral. The price of COIN is down 7% over the last 24 hours and is currently trading at $45.36—a drop of 86% from its all-time high of $357.39 on November 9, 2021.

"We think Coinbase likely faces a number of new headwinds over the near/medium-term due to the recent collapse of rival crypto exchange FTX," Jason Kupferberg, senior equity research analyst at Bank of America Merrill Lynch, wrote in a report, according to Yahoo! Finance. "As a result, we downgrade COIN to Neutral from Buy and reduce our estimates."

Trouble began for FTX when leaked financial documents of sister company Alameda Research, both founded by Sam Bankman-Fried, revealed that most of Alameda’s assets were in FTX-issued FTT tokens and other highly illiquid assets. This prompted Binance CEO Changpeng "CZ" Zhao to announce that his company would liquidate its entire position in FTT.

The move caused the price of the token to crash, as other investors and traders rushed to sell their stashes. This, in turn, led to a loss in consumer confidence in FTX, resulting in a “bank run” on the exchange and a liquidity crisis. FTX then filed for bankruptcy last week on November 11.

On November 8, Coinbase CEO Brian Armstrong took to Twitter to reassure customers and investors that Coinbase was safe, tweeting that Coinbase "doesn't have any material exposure to FTX or FTT (and no exposure to Alameda)." Armstrong's words appear to have not reassured market analysts as the damage from FTX's collapse spread across the crypto economy.

Bank of America pointed to an interview Coinbase Chief Financial Officer Alesia Haas gave the Wall Street Journal on Wednesday.

"What we are seeing now is a fallout of FTX is becoming much more like the 2008 financial crisis where it's exposing poor credit practices and is exposing poor risk management," Haas said.

SEC Chair Gary Gensler shared similar concerns in an interview with CNBC: "One of those players had the toxic combinations of lack of disclosure, customer money, a lot of leverage (borrowing) and then trying to invest with that, and then when markets turned on them, it appears that a lot of customers lost money," he said.

In April 2021, Coinbase became a publicly traded company. Armstrong says that as a publicly listed company incorporated in the United States, the company believes transparency and trust are essential. Coinbase's stock is down 86.44% for the year, according to data from Nasdaq.

"We feel confident that COIN is not 'another FTX,'" Bank of America’s Kupferberg said. "But that does not make them immune from the broader fallout within the crypto ecosystem.”