Why Coinbase (COIN) Stock Plunged 8% After the SEC Dropped Its Enforcement Case

When the SEC agreed to drop its enforcement case against the company last Friday, it represented not just a massive victory for Coinbase but a win for the entire industry.

On paper, things couldn't be better for Coinbase (COIN): When the SEC agreed to drop its enforcement case against the company last Friday, it represented not just a massive victory for Coinbase but a win for the entire industry.

For those unfamiliar, the SEC's case against Coinbase essentially hinged on how one defines security. The agency said crypto assets should fall under federal investor-protection rules like stocks or bonds, while Coinbase argued that the law didn't support equating bitcoin and other crypto assets with this definition of securities.

The fact that the SEC ultimately decided to drop its lawsuit signaled that President Trump's campaign promise of creating a friendlier regulatory environment for the crypto industry was already being put into action. This was further shown when the SEC then dismissed its lawsuit against Robinhood's own crypto business on Monday. The regulator had previously claimed that most crypto transactions made on Robinhood's platform were subject to federal securities laws, making a similar argument it had made against Coinbase.

Both of these lawsuits were filed under former SEC Chairman Gary Gensler.

But while Coinbase stock quickly rose on Friday after the SEC dropped its enforcement case, COIN closed down 8%. It has since fallen for seven straight days (as of this writing), trading below $210 on Tuesday.

So what gives?

Bad news keeps coming

Within hours of Coinbase revealing that the SEC had agreed to drop its lawsuit, news broke that the Dubai-based crypto exchange Bybit had been hacked by a North Korean criminal group and over $1.4 billion in ETH-related tokens had been stolen.

Industry analysts note that this was the largest crypto theft the industry has suffered by a significant amount.

And then OKX, an offshore crypto exchange with offices in Hong Kong and Singapore, pleaded guilty on Monday in the U.S. District Court of Manhattan to a charge of operating illegally in the United States as an unlicensed money transmitting business. It agreed to pay a $504 million fine.

Add to all this a crypto scandal now enveloping Argentine President Javier Milei after a meme coin called LIBRA that he promoted on X plunged and cost investors about $251 million.

What all this points to is the way in which investors seem to view the crypto business as one monolithic industry, which means bad news for one is bad news for all.

To be sure, concerns over Trump's trade policies and lingering inflation in America are also hurting shares of COIN as they are all risk assets at the moment.

COIN reflects the crypto industry’s health

As the only publicly traded crypto exchange, COIN moves with broader market forces like any other risk asset. These include concerns over Trump's trade policies, stubborn U.S. inflation, and black swan events like Bybit's hack could be one of the explanations for why COIN unexpectedly plunged on the day the SEC dropped its lawsuit.

The hack of Bybit suddenly raised concerns among investors over the security of all digital assets, even though Coinbase itself has never suffered a security breach of its exchange.

And having another crypto exchange plead guilty to operational malfeasance as OKX did Monday could also weigh on investors' minds as they evaluate the inherent risks of the industry.

Although Coinbase appears poised to see future growth with a friendlier regulatory environment in the U.S., the recent wave of bad news in the industry has put its current slump out of its hands.