29. September 2023

Coinbase Debt Downgraded to ‚Speculative Grade‘, Profitability Remains Pressured

• S&P has downgraded Coinbase debt from “investment grade” to “speculative grade”.
• This decision is due to the decreased trading volumes at Coinbase and the attention from authorities after the collapse of FTX.
• Despite efforts to lower operating expenses and potential benefits from rising interest rates, S&P anticipates Coinbase’s profitability to remain pressured in 2023.

The credit rating agency Standard & Poor’s (S&P) recently downgraded the debt of cryptocurrency exchange Coinbase from “investment grade” to “speculative grade”. This decision comes as a dramatic drop in investor confidence due to the most recent wave of layoffs at Coinbase.

In a statement, S&P provided an explanation for the decision by pointing out that trading volumes at the exchange had “meaningfully reduced” and that heightened levels of regulatory scrutiny have come to be as a result of the high-profile collapse of FTX in November 2022. The letter farther down the alphabet, such as D are utilized if a payment failure on a financial promise or when a bankruptcy petition has been submitted.

The most trustworthy borrowers, such as the United States Government or Microsoft, deserve the highest possible rating, which is AAA. With the downgrade, Coinbase has moved from “investment grade” to “speculative grade”.

Despite recent efforts to lower its operating expenses or any potential benefits it may receive from rising interest rates, the company stated that it anticipates Coinbase’s profitability to “remain pressured in 2023”.

Coinbase made the announcement earlier this week that the company aims to cut its staff by around 950 people and, in the process, would be paying severance payouts that may range anywhere from $163 million to $192 million. This is a result of the increase in the cost of operations and the decrease in trading volumes.

With the downgrade, the outlook for Coinbase is uncertain. It remains to be seen how the company will respond and how it will fare in the coming months and years. Investors and analysts alike await further developments to see how the situation will unfold.