• S&P has downgraded the debt of Coinbase from “investment grade” to “speculative grade” due to decreased trading volumes and increased regulatory attention.
• The downgrade was influenced by the collapse of FTX in November 2022 and Coinbase’s efforts to cut operating expenses.
• Coinbase is expected to remain under pressure in 2023 despite potential benefits from rising interest rates, and has announced it will be cutting 950 jobs and paying out severance packages.
Coinbase, one of the leading cryptocurrency exchanges, has recently been dealt a big blow. Standard & Poor’s (S&P) has downgraded the debt of the company from “investment grade” to “speculative grade”, a move that has caused a dramatic drop in investor confidence.
The credit rating agency cited diminished trading volumes and heightened levels of regulatory scrutiny as the main reasons for the downgrade. Despite recent efforts to reduce its operating expenses, S&P believes that Coinbase’s profitability will remain under pressure in 2023. This is mainly due to the collapse of FTX in November 2022, which has led to increased scrutiny from authorities.
The downgrade has also been accompanied by a wave of layoffs at Coinbase. The company has stated that it will be cutting its workforce by around 950 people and, in the process, will be paying out severance packages that may range anywhere from $163 million to $240 million.
Coinbase has acknowledged that the downgrade and layoffs are a blow to the company’s finances, but has noted that it is still well-positioned to benefit from the potential advantages of rising interest rates. It remains to be seen how the company will fare in the months ahead, but it is clear that the outlook is not looking particularly rosy.
Overall, the recent S&P downgrade of Coinbase debt and the accompanying layoffs have caused a significant drop in investor confidence in the company. Despite its efforts to reduce operating expenses and the potential benefits of rising interest rates, Coinbase is expected to remain under pressure in 2023. It remains to be seen how the company will manage the challenges ahead, but it is clear that the outlook is not looking particularly promising.