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Coinbase stock declines on SEC warning

Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss the decline in stock for Coinbase, as well as the outlook for crypto.

Video Transcript

JULIE HYMAN: Let's talk about Coinbase. The company's shares under pressure after it received a Wells notice from the Securities and Exchange Commission. What's a Wells notice? Well, it's basically a notice from the SEC that you might get sued, or you might be under some kind of further scrutiny here. Preliminary determination is what it said to recommend an enforcement action against the crypto exchange over federal securities laws.

Traditionally, if you're an investor in a company that gets a Wells notice, that is not something that you want to hear. Coinbase has pressed back pretty forcefully against the SEC and has been really for quite some time now. But this is-- it has to do with Coinbase itself and whether it is going to be regulated further by the SEC, whether it is-- its assets that it's peddling are securities, whether they're not securities. But obviously, this is also important for the bigger crypto landscape. And Coinbase has positioned this as such.

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BRAD SMITH: Yeah, and it's particularly taking aim at a part of their earn, their prime, and their wallet products here. On the wallet side, at least, of course, Coinbase is one of the larger players there, considering you can buy and sell cryptocurrencies. And then storage comes into play of those cryptocurrencies. And Coinbase has built a business around that storage as well. And so the wallet product pretty considerable there.

And then additionally, on the earn side, as it relates to staking, that's increasingly important, too. It's a part of their business that they were looking to grow out even more. This has been built into their business model for Coinbase, as well as some of the other cryptocurrencies exchanges. They had first acknowledged this in their first quarter of 2022 earnings, how their revenues would ultimately be benefited by staking. But this essentially when someone purchases cryptocurrency and then the option to store those coins for utilization for a period of time.

But the utilization of those coins that they store is basically just for the confirming of transactions, essentially, at the end of the day-- verification, validation of transactions on the blockchain. So with all of that, I mean, that could be a hit to what is a budding business for Coinbase, but not a massive part of the business.

JULIE HYMAN: No, but it needs more business, right? Like, that's the issue here for Coinbase, right? Its bread and butter business is so subject to the whims of the broader crypto market. And it has seen a drop in activity and so has tried to bolt on some of these other services. If it can't do it, then that's not necessarily great news.

BRAD SMITH: Yeah, absolutely.