Stablecoins and decentralized finance (DeFi) could become the next target in the US Securities and Exchange Commission's (SEC) crackdown on the crypto sector, investment bank Berenberg said in a research report released Tuesday.
Stablecoins And DeFi Could Possibly Be SEC's Next Targets
The report noted that if USD Coin is targeted by regulators, the impact on Coinbase revenue could be significant.
The investment bank said the SEC can now focus on regulatory compliant stablecoins and decentralized finance protocols, including Tether (USDT) and USD Coin (USDC), two of the largest by market capitalization.
Earlier this month, the SEC sued crypto exchange Binance, its founder Changpeng "CZ" Zhao, and the operating company of Binance.US for alleged violations of federal securities laws. A day later, he sued rival exchange Coinbase (COIN) on similar charges.
Analysts led by Mark Palmer wrote that the SEC "could target stablecoins that serve as the lifeblood of decentralized finance" if it wants to reduce the potential of unregulated DeFi protocols to serve as viable alternatives to regulated lenders and exchanges.
The report stated that the SEC could also weaken the DeFi ecosystem by targeting these stablecoins.
Berenberg says the impact on Coinbase's revenues could be significant if USDC is targeted by US regulators, noting that in the first quarter of 2023 the exchange generated a net income of $199 million from interest income from USDC reserves.
The note stated that Bitcoin (BTC), which the SEC has approved as a commodity rather than an unregistered security, is likely to be the ultimate beneficiary of the crackdown.
The report noted that MicroStrategy (MSTR) shares are well positioned to outperform the company's focus on acquiring and holding Bitcoin, as regulatory restraint will likely lead to a more Bitcoin-focused U.S. crypto industry than it has in recent years.
*Not investment advice.