On Wednesday, Coinbase, the world’s second-largest exchange, announced it would cease one of its applications. The exchange is suspending issuing Bitcoin-backed loans through its Coinbase Borrow service as of May 10.
In a statement released by the company on Wednesday, it confirmed that the service, which allows users to borrow against Bitcoin, would no longer be available. Adding an explanation, the firm stated:
We regularly evaluate our products to ensure we’re prioritizing the offerings that our customers care about most.
Sources reveal that Coinbase Borrow provides loans of as much as $1 million against Bitcoin collateral but only in certain U.S. states. The loans have an annual interest rate of 8.7%. Furthermore, according to the company’s website, Coinbase customers can borrow up to 40% of the value of Bitcoin in their accounts.
Notably, the firm did not explicitly state the reason behind this step if the termination of the loan service was due to regulatory pressure or other technical reasons. It is nothing new that Coinbase is having a troublesome relationship with the US regulators.
The problems started after Coinbase received a Wells notice issued by the Securities and Exchange Commission in March. The Wells Notice means that the SEC has made a preliminary determination that will see it recommend an enforcement action against Coinbase.
While the company was retaliating to the Wells Notice with optimism and courage which was reflected in their tweets and the legal action they charged SEC with, another lawsuit added to the trouble by accusing it of insider trading.
Following these, the number of application downloads also saw a declining graph. According to Apptopia, a research firm that tracks app usage metrics, the number of people downloading the Coinbase app continues to decline. Tom Grant, Apptopia’s VP of Research says that the data paints a bearish picture for the company.
Furthermore, reports revealed that app usage dropped off significantly in March as casual and power users spent less time using the app. Coinbase was in hot water again this week when executives were accused of insider trading and dumping millions in stock to avoid losses before an earnings report was released.
On Thursday, the company is due to release its quarterly earnings report. Analysts expect Coinbase to report a first-quarter net loss of $329 million, or $1.38 per share.
In addition, its stock prices have taken a beating over the past couple of weeks. Since mid-April, COIN prices have slumped 30%, and they continued that decline this week. The stock fell 5.5% on the day on May 3 to end at $48.88 in after-hours trading, according to MarketWatch.
The stock is currently down more than 40% from its 2023 high of $84 on March 21 as regulatory pressure intensifies. By comparison, crypto markets have retreated just 7.5% from their 2023 high.
Prior to this, in January, Moody’s, a major provider of credit ratings, lowered Coinbase’s (COIN) long-term credit rating as well as the rating of its guaranteed senior unsecured notes due to “substantially weakened revenue and cash flow generation capacity.”
The long-term corporate family rating (CFR) for Coinbase, was cut from Ba3 to B2, both of which are regarded as non-investment grades. In addition, according to the firm, guaranteed senior unsecured notes were downgraded from B1 to Ba2.
All of this shows the hardships that Coinbase is struggling with at the moment, however, it is yet to be seen if this all hails from the regulatory wrath that the company is bearing with or signifies a dwindling trust of investors.