On Monday, Morgan Stanley downgraded Coinbase Global (COIN) from Equal-weight to Underweight, Seeking Alpha reported. That is basically the bank telling clients to sell the stock. On the day of the downgrade, COIN shares fell nearly 3% and closed near $140.
One reason for the downgrade involved another company entirely. A rival exchange, Binance, was hacked in late October, and $6.3 billion was lost. Even though Coinbase was not involved, Morgan Stanley thinks regular crypto traders will be too worried to keep buying and selling after the incident.
However, that was not the only reason for the downgrade. The main reason was a deterioration in Morgan Stanley’s initial recovery thesis.
Why Morgan Stanley thinks Coinbase deserves a Sell rating
In addition to the downgrade, Michael Cyprys, a senior research analyst at Morgan Stanley, cut his price target on the stock from $258 to $120.
That is a 53% reduction. He cites a sharp slowdown in retail crypto activity as the main reason. Coinbase makes most of its money from the fees that people pay to buy and sell cryptocurrencies on its platform. So when regular users stop trading, Coinbase’s revenue will be affected.
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The slowdown that Morgan Stanley fears is already showing up in Coinbase’s numbers. According to CoinDesk, Cyprys noted that Coinbase had only brought in about $165 million in transaction revenue by October 25.
That puts its fourth quarter on track to reach roughly $607 million. That amount is lower than Wall Street’s expectation of $685 million. It is also lower than the number Morgan Stanley forecasted earlier by close to half.
Coinbase CEO Brian Armstrong has steered the exchange through a steep retail trading slowdown in 2026.SOPA Images / Getty Images
How a Binance hack ends up hurting a company that was not involved
The Binance breach was one of the largest crypto hacks ever recorded.
Coinbase itself was untouched, but Morgan Stanley argues that worried traders won’t exempt any exchange. When people see a headline that shows a $6.3 billion hack, many will simply step back from crypto for a while.
That pullback is exactly what Morgan Stanley is factoring into its forecasts.
“While Coinbase continues to execute on its broader strategy, recent trading trends, a softer forward revenue outlook and uncertainty around the backdrop for crypto in the context of the recent Binance hack suggest a weaker recovery than we previously anticipated,” Cyprys wrote, according to Investing.com.
Based on the new outlook, Morgan Stanley lowered Coinbase’s 2027 revenue estimate by 28% and cut adjusted EBITDA by 47% for the same year.
Needham analysts felt the timing of the incident was unfortunate, telling clients the Binance developments “had roiled crypto markets” just as Coinbase reported its earnings, Yahoo Finance noted.
What the downgrade means for Coinbase shareholders
Morgan Stanley also cut the valuation multiple it uses on the stock from 20 times EBITDA to 12 times. That means the bank now expects investors to pay a lot less for every dollar Coinbase earns, even if the next crypto rally arrives on schedule.
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However, not every analyst agrees with Morgan Stanley’s bearish view. BTIG kept its Buy rating on COIN after the Binance hack, arguing that Coinbase’s clean regulatory record in the U.S. will eventually pull capital away from offshore exchanges, Investing.com reported. Out of 27 analyst ratings, 17 still rate COIN a Buy or Strong Buy.
What everyday investors should think about now
For readers who already own Coinbase shares, the Binance hack’s role in this downgrade is a reminder that crypto exposure comes with risks that sometimes have nothing to do with the company itself. A hack at a rival company can shift public sentiment about crypto, which can affect the stock.
Anyone considering buying the dip should think about whether retail traders will return confidently next year. Also, consider the possibility that regulators could tighten rules on every exchange after the Binance incident.
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