Making sense of Coinbase’s post-settlement stock bump
Coinbase will have to part with $100 million, but markets didn’t seem to care
We learned two things about Coinbase yesterday: First, the U.S. crypto exchange will have to disburse $100 million for failing to conduct adequate background checks. And second, its stock jumped 12% in the aftermath of the news. (It’s since moderated, trading at $34.10 per share at the time of publication, roughly in line with where it traded at the very end of last year and the very beginning of this one.)
The $100 million sum is the conclusion of a settlement with the New York State Department of Financial Services, which had been investigating the company for violating anti-money laundering laws and other legal requirements.
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Among other things, regulators found that “Coinbase’s compliance system failed to keep up with the dramatic and unexpected growth of Coinbase’s business, and, by the end of 2021, was overwhelmed, with a substantial backlog of unreviewed transaction monitoring alerts, exposing its platform to risk of exploitation by criminals and other bad actors.”
While it seems baffling that Coinbase’s stock would be up after what looks like bad news, it is important to keep in mind that markets revolve around expectations. Anything that is anticipated, whether good or bad, is already taken into account — priced in — when valuing a company.
In Coinbase’s case, that it is getting fined is not a surprise. The company disclosed that this investigation was in progress in its annual 10k filing in 2021. From the stock market’s perspective, the main piece of news is that the investigation, and uncertainty around it, is finally coming to a close.
