Coinbase pays $100 million in settlement, investment bank lowers target price to $36

The long-established U.S. cryptocurrency exchange Coinbase has reached a $100 million settlement agreement with the New York Department of Financial Services (NYDFS) over allegations of violating anti-money laundering laws. Coinbase will pay a $50 million fine and invest $50 million in improving compliance programs over the next two years. Cowen analysts have downgraded Coinbase's stock rating from outperform to neutral and lowered its target price from $75 to $36.

NYDFS Criticizes Coinbase for Longstanding Compliance Lapses

The New York Department of Financial Services (NYDFS) has stated that Coinbase's anti-money laundering compliance program exhibited "longstanding compliance lapses." Despite being licensed in New York since 2017, the publicly-listed crypto exchange failed to develop adequate compliance programs as its market grew significantly, resulting in over 100,000 alerts going unreviewed by the end of 2021. This failure led to Coinbase being unable to investigate and report suspicious transactions in a timely manner as required by anti-money laundering laws.

The NYDFS has fined Coinbase $50 million and mandated the company to invest an additional $50 million into its compliance program.

Coinbase's Chief Legal Officer, Paul Grewal, stated in a statement to The Wall Street Journal:

"Coinbase has taken substantive steps to address these past deficiencies and remains committed to being a leader and exemplar in the cryptocurrency space, including working collaboratively with regulatory authorities on compliance."

Cowen Analyst Lowers Price Target

Cowen, an investment bank, has downgraded Coinbase's stock from outperforming the market to performing in line with the market, citing declining revenue expectations, low visibility on stable retail trading volumes, and potential enforcement actions from the U.S. Securities and Exchange Commission following FTX. The price target has been lowered from $75 to $36.

According to The Block's report, Cowen analysts have reduced their 2023 revenue expectation for Coinbase by approximately 40% from $3.6 billion to $2.1 billion. They have also adjusted the expected EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) from an anticipated loss of $61 million to a loss of $361 million.

Cowen mentioned that cryptocurrency trading volume has been declining since November 2021 when Bitcoin reached a historical high just below $69,000. They believe that the likelihood of a significant rebound in 2023 is quite low due to the volatile macroeconomic backdrop and the continued impact of the spread risk associated with FTX on Coinbase's stock performance.

Coinbase's stock has plummeted by 86% in the past year, currently hovering around $33.53 per share, hitting historic lows.