Coinbase reported first-quarter results on Tuesday, May 10, missing analysts’ revenue estimates and sending the shares down as much as 19% in extended trading. The results come amid a major sell-off in the crypto market, with Bitcoin dropping below $30,000 on Monday. The company’s stock has lost more than 70% of its value since late March.
However, Coinbase doesn’t seem to be particularly worried about this result and reminded shareholders that the company’s long-term value is still good. “We believe these market conditions are not permanent and we remain focused on the long-term,” the company wrote in a letter accompanying its earnings release.
But in addition to the release of the financial results, the company also announced that it has filed a registration statement with the Securities and Exchange Commission (SEC).
The company said that the registration “is intended to be used for potential prospective offerings which may include the sale of new securities for general corporate purposes.” According to the filing, the company is shelf registering with the SEC to “have better access to capital markets quickly and efficiently when needed,” and while the company has no immediate plans to offer securities at this time, with this registration Coinbase will “be able to offer and sell securities in the future.”
The company’s main objective with the registration may well be to have better access to capital markets, but looking at the regulatory risks detailed in the company´s Q1 report, the uncertainty related to the definition of some crypto assets as “security” under U.S. federal securities law may have also played a role in the decision.
In its filing, Coinbase reports that the SEC generally doesn’t provide advance guidance or confirmation on the status of any particular crypto assets as a security. The SEC’s views in this area have evolved over time, and it is difficult to predict the direction or timing of any continuing evolution, the company argued. For the time being, the SEC has only expressed its views about bitcoin and ethereum, saying that these are not securities — but according to Coinbase, the SEC’s views are not binding on the SEC or any other agency or court. Additionally, a change of approach by the SEC or its directors could have a significant impact on the business. As for the rest of crypto assets, there isn’t any certainty that under the current rules such assets are not securities, although the company argues that none of the assets traded in its platforms are securities, according to its own analysis.
However, the company includes a warning for investors: “if the SEC, state or foreign regulatory authority, or a court were to determine that a supported crypto asset currently offered, sold, or traded on our platform is a security, we would not be able to offer such crypto asset for trading until we are able to do so in a compliant manner,” (italics added) reads Coinbase’ filing.
The company may be preparing in advance for this possibility, and the registration announced yesterday could enable Coinbase to quickly offer on its platform any crypto asset that could be considered a security by the SEC or by a court.
But the registration could help Coinbase not only to buy, sell and trade crypto assets considered securities offered by third parties, but also for the company’s own future products. For instance, there is regulatory uncertainty regarding the status of the company’s staking, lending, rewards and other yield-generating activities, which the regulator could eventually consider as securities. Additionally, the company reported that it has received investigative subpoenas from the SEC regarding its plans for stablecoin and yield-generating products. The registration with the SEC could help the company to be ready if the SEC were to find these products are securities.