Potential Impact of Regulatory Scrutiny on USD Coin and Coinbase’s Revenue

Potential Impact of Regulatory Scrutiny on USD Coin and Coinbase’s Revenue

According to a recent report, regulatory authorities in the United States, particularly the Securities and Exchange Commission (SEC), are expected to shift their focus towards stablecoins and decentralized finance (DeFi) in their ongoing crackdown on the crypto industry. The research report by Berenberg suggests that the SEC may target stablecoins such as tether (USDT) and USD Coin (USDC), which are currently the two largest stablecoins by market capitalization, as well as DeFi protocols to ensure compliance with regulatory frameworks.

The SEC’s recent legal actions against major crypto exchanges, including Binance and Coinbase, for alleged violations of federal securities laws support this expectation. The report suggests that if the SEC aims to curtail the influence of unregulated DeFi protocols, which serve as potential alternatives to regulated financial institutions, it might focus on the stablecoins that form the lifeblood of the DeFi ecosystem.

Berenberg highlights that if USD Coin specifically becomes a target of U.S. regulators, it could have a significant impact on Coinbase’s revenue. The report points out that in the first quarter of 2023, Coinbase generated $199 million in net revenue, which accounted for approximately 27% of the total, from interest income earned on USDC reserves.

Interestingly, the report also notes that Bitcoin (BTC) is likely to benefit from the regulatory crackdown. The SEC has already classified Bitcoin as a commodity rather than an unregistered security, giving it a more favorable regulatory status. As a result, the note suggests that Bitcoin may experience increased prominence within the U.S. crypto industry in the coming years.

In light of these developments, the report identifies MicroStrategy (MSTR) shares as potentially outperforming. The company’s strategic focus on acquiring and holding bitcoins positions it well in anticipation of a regulatory landscape that will likely steer the U.S. crypto industry towards a stronger emphasis on Bitcoin compared to recent years.