A complaint from the U.S. Securities and Exchange Commission last week put Coinbase under pressure in the crypto crackdown. According to analysts, Robinhood is gaining market share from Coinbase.

Key Takeaways

  • SEC complaint last week puts Coinbase under pressure in crypto crackdown

  • According to analysts, Robinhood is gaining market share in the crypto space from Coinbase.

  • Coinbase’s declining market share has led to a shift in focus to the European market as a potential area for expansion.

Retail bitcoin traders from Coinbase Global Inc. may be switching to Robinhood Markets Inc., said Mizuho Securities analyst Dan Dolev.

According to Dolev, data from April showed that in terms of retail cryptocurrency trading volume, the company may be losing market share to Robinhood, a trading app that has risen to fame due to its popularity among domestic stock traders.

Robinhood market share | Credit: Robinhood.com

Dolev commented that there is no ideal reason for the potential stock losses other than concerns about regulatory pressure from the SEC’s investigation into cryptocurrencies or rising retail transaction fees on Coinbase for small items.

SEC attacks Coinbase and Binance, causing them to lose market share

The U.S. Securities and Exchange Commission (SEC) recently sued the exchange, claiming that some digital coins are securities, adding to pressure on regulators. The day before, a broader lawsuit was filed against rival cryptocurrency trading platform Binance Holdings Ltd.

According to the SEC’s complaint against Coinbase, Coinbase allegedly used its platform as an unregistered national securities exchange and broker for trading cryptocurrencies.

When Coinbase received the go-ahead for listing, investors and enthusiasts viewed it as a major achievement.

Two years later, Coinbase and its main competitor, Binance, are in trouble with the U.S. Securities and Exchange Commission. The possibility of two cryptocurrency trading platforms failing will undoubtedly lead to a huge market gap and changes in the cryptocurrency trading space.

Dolev’s Underperform rating and Street-low price target of $27 make him one of the most bearish analysts covering Coinbase.

In addition to concerns about regulatory pressure from an SEC investigation into cryptocurrencies or rising fees for small retail transactions on Coinbase, Dolev noted that “there is no perfect explanation for potential stock losses.

Dolev’s study of Coinbase’s shareholder letter and Robinhood’s monthly metrics reports suggests that either Coinbase is losing market share to Robinhood or their take rate — the amount of money they make from each transaction — has fallen. Dolev warned against assuming that retail rates are rising or falling.

“There is no doubt that Coinbase is in a stronger business position as a result of these efforts. We would say this regardless of the Wells Notice we recently received from the SEC. We view this as an opportunity to continue pushing for a clear rulebook for crypto regulation in the United States,” the company wrote in the letter.

It added that the United States could not afford to fall behind in this critical technology area, which has the potential to modernize the banking system and save 10,000 American jobs.

“We continue to be encouraged by the broad bipartisan support for crypto legislation and we will fight for regulations for our industry,” Coinbase asserted.

Drop Stock

In line with a broad decline in cryptocurrency-related stocks, Coinbase shares fell as much as 5.5% on Thursday before paring losses to be little changed. The stock has risen about 50% so far this year. Robinhood has swung back and forth between modest gains and losses.

On the other hand, Binance, the world’s largest cryptocurrency exchange, has seen its market share decline over the past three months as U.S. regulators investigate possible violations of federal law.

At its peak in March, the group, which claims to have no headquarters, accounted for 57% of the average monthly trading volume on global cryptocurrency exchanges. But as of now, research firm CCData reports that figure is <>%.

The removal of three cryptocurrency tokens from Robinhood Markets’ platform was announced last week, days after the U.S. Securities and Exchange Commission took action against the industry’s top exchange.

The online brokerage has announced that as of July 27, customers will not be able to trade Solana, Cardano, or Polygon through Robinhood.

Coinbase’s European Orientation

The markets of France, Spain, Italy, the Netherlands and Switzerland were added to Coinbase’s services last year. The United Kingdom is currently its largest overseas market.

Recently, Peter Stilwell, head of business operations and strategy for Coinbase's European, Middle Eastern and African division, said that Europe is very important to Coinbase's medium-term strategy.

“Europe is our largest region. That’s why we went out and registered in several European markets,” he said in March when launching ethereum layer 2 network Base.

“We are localizing our solutions for European customers, which is why we are also seeking partnerships in Europe,” he added.

Stillwell also said that with offices in Germany and Ireland, it would be a great opportunity for Europe to be at the forefront of cryptocurrency regulation, with MiCA coming soon.

For Coinbase, which already describes itself as the “most regulated” exchange, MiCa presents an opportunity to impose stricter regulations on the EU crypto industry.

Stillwell stressed that Europe means a step in the right direction. Hopefully, it will continue to evolve with the industry, adding components for things like stablecoins, DeFi, and self-custodial wallets. According to Stillwell, this will be crucial. “I’ve been impressed with the EU’s approach to regulation so far. I like their willingness to collaborate, listen, and work to create something that protects customers without stifling innovation,” he concluded.