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2022 has been an infamously terrible 12 months to be a tech firm, nearly definitely a worse 12 months to be a fintech firm, and a flat-out deadly 12 months to be a fintech firm that’s particularly depending on cryptocurrency.
There are many examples, however few extra hanging or telling than Coinbase, which went public in April 2021, when the fintech market and the worth of Bitcoin had been nonetheless in fizzy-cork-popping mode. Truly it could possibly be argued that not that a lot has modified about Coinbase within the ensuing sixteen months besides the general market and the worth of Bitcoin. When Bitcoin’s worth goes down, fewer folks open and use Coinbase accounts, and so Coinbase makes much less cash. Coinbase inventory and Bitcoin’s worth observe intently till this spring, when Coinbase began tumbling slightly more durable than Bitcoin:
Coinbase’s total plunge was fully predictable; certainly, we predicted it even earlier than Coinbase went public. In a subscriber-only installment on March 1, 2021, we interviewed Jeff John Roberts, a journalist for FORTUNE and Decrypt and creator of The Kings of Crypto, an insightful historical past of Coinbase.
“I feel it’s going to be a actuality verify, as a result of numerous crypto folks wish to reside on this fantasy world of “we’re past the state” and stuff like this. So I feel having to file these quarterly experiences will change them,” Roberts mentioned. “After they shit the mattress — which they are going to ultimately. They’re going to get out to an excellent begin, they’re going to blow the doorways off with their first report. Nevertheless it’s going to be actually attention-grabbing when one other crypto winter comes, and it’ll; I’ve been attempting to consider one other firm that’s as cyclical. So how is the general public market going to react after they see the one foundation of income fall 70%?”
That query was answered this summer time, when crypto winter hit arduous. When Coinbase announced earnings on August 9, revenues had been down practically 64%, and the corporate misplaced $4.98 a share, nearly twice the quantity that analysts had estimated. The worth of the cryptocurrency that Coinbase holds, at $428 million, is lower than half what it was simply three months earlier.
That was the predictable half. Much less predictable has been how CEO Brian Armstrong and his management have behaved because the market waxed and waned. The mass hiring in 2021 as the corporate grew would come again to hang-out it. Coinbase, which dominates the US crypto buying and selling market, also embarked on an ambitious international campaign, promising to “double down on regional investments, including to our portfolio of platforms resembling CoinSwitch Kuber and CoinDCX in India, Bitso in Latin America, and Rain within the Center East.” And it put numerous time and assets right into a marketplace for nonfungible tokens (NFTs)—together with a bizarre Hollywood film project—which was largely rejected by the market.
Then every thing got here crashing down. On June 14, Armstrong introduced 1,110 layoffs—18% of the workforce—acknowledging that “we grew too shortly.” An internet petition asking for the resignation of prime officers appeared to actually get underneath Armstrong’s pores and skin. In a Twitter storm he taunted the petition writers: “if in case you have no confidence within the execs or CEO of an organization then why are you working at that firm? Stop and discover a firm to work at that you just imagine in!”
The Securities and Trade Fee (SEC) piled on in July, along with an insider buying and selling case involving a former Coinbase worker. According to a SEC civil complaint, at the very least 9 cash traded on the Coinbase platform qualify as securities, though Coinbase has by no means registered with the SEC. Since then, Barron’s has reported another SEC investigation into Coinbase’s staking program.
Maybe most annoying of all for its shareholders, Coinbase is shedding market share. Citing information from CryptoCompare, Bloomberg reported this week that “Coinbase’s market share fell to six.3% in July from 10.7% in January, as measured by international spot buying and selling quantity among the many prime 15 crypto exchanges.” Not surprisingly FTX, which has been gobbling up crypto corporations as they stumble, is choosing up the slack, as is Binance, which for all its regulatory complications stays the world’s largest crypto change.
And but, for all that, Coinbase inventory has considerably recovered from its low level this 12 months ($53.72 a share on Might 11); on Friday COIN closed at greater than $90 a share. Possibly the market thinks that Bitcoin’s modest turnaround since mid-June bodes properly for COIN inventory, and positively a recent announcement that BlackRock will use Coinbase to supply its institutional purchasers entry to Bitcoin buying and selling was seen as a inventory booster.
However beware: Coinbase’s descent has attracted outsized curiosity from quick sellers. Someplace round one-fifth of all COIN shares at the moment are offered quick. In consequence, Barron’s reports that Coinbase stock is “acting like meme stocks.”
The place is that this all going? We turned once more to Roberts, not for day-to-day inventory steering however for a basic sense of the place Coinbase is headed. One issue to look at: in May FTX’s Sam Bankman-Fried bought 56 million shares in Robinhood. That is a part of a broader effort to scarf up dying crypto property, as we’ve discussed here. If, as has been recommended, FTX finally ends up proudly owning Robinhood outright, that might change every thing for Coinbase. Says Roberts: “That’s numerous buyer accounts and brings [FTX’s] technical wizardry to it. For buyer acquisition prices, it’s a really low cost technique to do it after which ought to they go full out with advertising and their glorious tech, that could possibly be a game-changer for Coinbase.”