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Credit rating business Moody’s Investors Service has downgraded the Corporate Family Rating (CFR) and guaranteed senior unsecured notes of crypto exchange Coinbase.
Moody’s downgraded the exchange’s CFR from Ba2 to Ba3 and its guaranteed senior unsecured notes from Ba1 to Ba2. Additionally, Moody’s said both ratings are still under review and may be subject to further downgrades- unpleasant news for Coinbase Global Inc (NASDAQ: COIN).
The CFR shows a company’s ability and capability to meet its financial obligations. The Ba3 level is considered lower than the non-investment stage. On the other hand, senior unsecured notes are typically unsecured debts. That is debts that a company holds and are not backed by assets. When Coinbase released an overwhelming Q1 result earlier in May, its junk bonds tanked. Since then, the company’s bonds have been steadily declining.
Moody’s Downgrades Coinbase
Moody’s explained the relationship between how Coinbase generates its revenue and transaction activities. The rating agency said the exchange’s revenue model depends on “trading volumes, transaction activity per user and overall crypto asset prices.”
It added that the excessive price fall across all cryptocurrencies had affected the customers’ transaction levels. In turn, Coinbase has to deal with weaker revenues and lower cash flow.
“…Coinbase Is substantially weaker in revenue and cash flow generation due to the steep declines in crypto asset prices that have accrued in recent months and reduced customer trading activity. Moody’s expects the company’s profitability to remain challenged in the current environment despite its 14 June announcement of a reduction in its global workforce of around 1,100 employees.”
Moody’s highlights some of the factors it will consider in rating Coinbase in the near future. They include expenses, regulatory developments, and the general condition of the crypto market and how it affects the exchange’s transaction volumes and revenues.
It is no news that the crypto market is in a terrible position, resulting in crypto companies reducing their workforces. Coinbase also joined the latest trend, reducing its headcount by 18%. Despite the fact that Coinbase is letting staff go to continue to serve its customers, Moody’s expects the exchange’s profitability to “remain challenged in the current environment.”
Except for gaining approximately 15% in the last five days, Coinbase has been plunging. The crypto company has fallen more than 73% in the last twelve months, declining further by 76.67% since January. In the last three months, COIN has dropped more than 68% and almost 22% over the past month. At writing, Coinbase is at a premarket trading price of $59.01.