What happened
As of 1:30 p.m. EDT on Monday, shares of Coinbase Global (NASDAQ:COIN) were down 4.58%. The second-largest crypto-trading platform in the world announced today that it would be dropping plans for cryptocurrency lending products.
The move came after the Securities and Exchange Commission threatened to sue the company if it proceeded with its plans. Coinbase had planned to offer 4% annual yields to investors who lent out their USDC stablecoin on the platform. In addition, it had been scaling down its asset loan operations, which involves using crypto as collateral for loans to pay off everyday expenses.
Image source: Getty Images.
So what
The move dealt a crippling blow to Coinbase, which is trying very hard to diversify out of its reliance on trading commissions for revenue. It’s essential considering that the brokers in the sector are trying to offer the lowest fees possible to solicit customers. But the glass is always half full. If anything, regulatory uncertainty surrounding cryptocurrencies caused an industrywide sell-off, with trading volume on Coinbase surging over 100% compared to the previous day.
Now what
But over the long term, Coinbase’s business model won’t be sustainable if it backs down to regulatory pressure every time it offers a new product. So overall, I’d be careful buying shares of this company at a market cap of $50 billion even after the sell-off. It generated about $8 billion in sales annualized and has an unsustainable revenue growth rate of over 1,000% year over year.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.