I’ll never forget when Mad Money’s Jim Cramer boasted that he “liked Coinbase (COIN) to $475” and to keep “doubling down” as the stock went lower.
Funny how things you say come back to haunt you.
COIN is the American crypto exchange that just got charged with operating as an unregistered broker, operating an unregistered exchange, and operating as an unregistered clearing agency.
Not only that, the SEC specifically scolded them for selling digital tokens with no value such as offering the sale of unregistered securities (SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO).
COIN was at the right place at the right time when crypto blew up to $65,000 and now it is certainly the inverse of that situation.
COIN is now languishing at $51 per share after a 12% selloff and a far cry from the $475 price that Jim Cramer lusted over and gushed to viewers about how much value there was at almost 500 per pop.
The crackdown is certainly not over and SEC commissioner Gary Genseler appears to be on a mission to make digital tokens and the industry supporting it a living hell.
Gensler warned banks to steer clear of crypto because of potential risks to the financial system, making it harder for US citizens to invest.
Paul Grewal, the company’s top lawyer, has previously said that those tokens aren’t securities.
A federal regulator also alleged that Coinbase acted as an exchange, broker-dealer, and clearinghouse all without registering with the SEC for any of those roles.
A virtual currency may fall under the SEC’s remit if investors buy it to fund a company or project with the intention of profiting from those efforts. That determination is based on a 1946 US Supreme Court decision defining investment contracts.
The big takeaway here is the extent to which the SEC thinks crypto is just an utter fraud.
The future appears dim if the SEC keeps bashing this nascent industry.
Digital tokens offer no intrinsic value and deliver no cash flow to shareholders simply because there is nothing to cash flow from.
How can an investor cash flow from a piece of stored code that doesn’t offer actionable software like a photo viewer or music editor?
It’s software that doesn’t do anything but then packages itself as a store of value because we should trust it for no apparent reason--and it’s not even backed by any government.
The SEC goes into the specific coins which they think aren’t securities; and the list is long, which is highly detrimental to COIN’s business.
The tech sector has been roaring in 2023 and the biggest and strongest companies have seen their valuations shoot to the sky.
The knock-on effect is that the bar has been set extremely low for tech companies, but COIN has failed to jump over the low bar.
Tech firms can’t do IPOs easily at 5% interest rates hence even smaller companies like Roblox (RBLX) and Uber (UBER) performing admirably this year in the Nasdaq.
I am still highly bullish on technology stocks, but COIN and Robinhood or anyone else getting investigated by the SEC or Federal government is a hard pass for me.
