Shares of Coinbase Global Inc fell 13% in premarket trading on Thursday after the U.S. Securities and Exchange Commission issued a notice declaring its intent to recommend an enforcement action against the crypto exchange's products.
Global regulators are keeping a close watch on the crypto world after a string of high-profile collapses wiped out more than a trillion dollars from the digital assets industry's market capitalization last year.
In the aftermath of the turmoil, the SEC has raised scrutiny over certain crypto services and how the companies hold customers deposits.
Brokerage KBW analysts said in a note they had expected the SEC to serve Coinbase with a Wells notice and that the move will likely create an overhang on the crypto exchange's stock.
The enforcement action is likely to be tied to aspects of Coinbase's spot market as well as its staking service Earn, Prime and Wallet products, the company said.
Staking is a process in which cryptocurrency holders volunteer to take part in validating transactions on the blockchain. These products often offer customers eye-popping yields.
"We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so," Coinbase said.
Meanwhile, analysts at TD Cowen said the only way to get clarity on how the law applies to crypto solutions is via litigation.
"Litigation is especially important now as the banking crisis has made it even less likely that Congress will enact a regulatory regime for crypto before the 2024 presidential election," the brokerage wrote in a note.
(Reporting by Manya Saini in Bengaluru; Editing by Shinjini Ganguli)