Coinbase could be in trouble if the SEC orders the delisting of potential securities.

As the largest cryptocurrency exchange in the United States, Coinbase represents a significant portion of crypto trading in the United States. Coinbase's stock price soared near the end of 2021, during the crypto bull market. However, the bear market of 2022 took a toll on its shares, as it did for many other companies in the industry. In the past year, Coinbase's stock price has decreased by 63%. Currently, the exchange giant faces a second issue, which could prove even more problematic than falling cryptocurrency prices.

What occurred?

Wednesday, Coinbase announced that it had received a Wells notice from the Securities and Exchange Commission (SEC), a formal warning that the SEC is likely to take action against them. The day before, Cathie Wood's Ark Invest fund initiated its first sale of Coinbase shares this year, selling 9 percent of the company's outstanding shares. Both of these occurrences likely contributed to Thursday's 14% COIN increase.

The securities offering

However, Coinbase's concerns extend deeper than a share price decline. If it is legally compelled to delist assets that the SEC considers to be securities, it could have a significant impact on the company's revenue streams. The fewer tokens Coinbase is permitted to list, the less revenue it will generate from trading fees. As much as 56% of Coinbase's trading volume is facilitated by tokens with at least a "medium" risk of being deemed securities, according to analysts.