Coinbase stock extends drop as Wells notice prompts another analyst downgrade

Coinbase ( NASDAQ: COIN ) stock slid 3.2% in Friday premarket trading, adding to the 14.1% slump in the prior session, after Cowen downgraded shares of the cryptocurrency exchange to Underperform from Outperform as the SEC Wells notice brings "incremental risk to operations." On Wednesday evening, Coinbase said it received a warning that staff at the U.S. Securities and Exchange Commission recommended enforcement action against the company for allegedly breaching of securities laws. That sent COIN sharply lower Thursday and spurred Oppenheimer to downgrade to Perform from Outperform. In response to the Wells notice, which covers Coinbase's ( COIN ) listed digital assets, its staking service, among other services, the platform said it remains "confident in the legality of our assets and services, and if needed, we welcome a legal process to provide the clarity we have been advocating for," according to a March 22 blog post. That said, Cowen sees the possibility that the company is heading for litigation against the regulator, "which we expect to create an overhang on shares," the firm wrote in a note to clients. And "to the extent listed crypto assets are deemed securities, it could exacerbate trading volume deterioration," Cowen warned, while contending that COIN's blockchain rewards revenue would be negatively affected should the company be forced to close its staking business. The Underperform rating diverges from the Quant system rating and the average Wall Street analyst rating, both at Hold. JMP analyst Devin Ryan, meantime, maintained his Market Perform rating on COIN given this year's more favorable operating backdrop with the crypto market value up almost 50% from the end of 2022. "Considering the expense steps the company has been taking, we currently believe it has the resources to operate until we progress to a clearer regulatory path – which we remain hopeful will be the end outcome," he wrote in a note to clients. SA contributor Mike Fay also viewed COIN as a Hold as the company's potential court battle against the SEC could result in the elimination of its staking business, which was COIN's only growth segment last year .