Coinbase at record lows as fear takes over: What happened and what next?

What's going on with Coinbase?

Coinbase shares hit record lows on December 13 with the stock being under pressure along with the entire cryptocurrency market in the aftermath of the collapse of crypto exchange FTX coupled with the absolute bloodbath seen in digital currencies this year. 

FTX collapsed earlier last month and its founder Samuel Bankman-Fried was arrested yesterday in the Bahamas on counts of corporate fraud. This shook the entire cryptocurrency community which led to people frantically selling digital coins and shunning investing through crypto-focused exchanges. 

Since Coinbase is a direct competitor to FTX, by default investors took no time to pull out their investments from the exchange as fears took over. It is this fear that led investors to somewhat believe that it is just a matter of time before something similar happens to Coinbase.

Coinbase has no direct exposure to FTX, but the overall dwindling market sentiment towards cryptocurrencies seems to be affecting the company. 

Quick glance into the FTX drama:

FTX and its founder Samuel Bankman-Fried, commonly referred to as SBF, went from being valued at nearly $32 billion a few weeks ago to filing for bankruptcy. SBF’s personal wealth was valued at around $26 billion, a poster child in the cryptocurrency world indeed!

FTX grew large quickly and was making heavy expenses through celebrity endorsements. For instance, the company had paid $15 million to Kevin O’Leary, a judge on television show Shark Tank US,  to be its spokesperson. 

Meanwhile, liquidity in the global economy was quickly drying up on account of the Russia-Ukraine war, inflation troubles, rising interest rates and so on. During such times, generally investors refrain from taking on riskier investments like cryptocurrencies. 

Coindesk, which is a news site focused on cryptocurrencies, published an alarming article on how FTX was mishandling customer funds, which caused investors to pull out from the exchange. 

Binance, which is the world’s biggest bitcoin exchange, announced their intention to buy FTX to help with its liquidity crunch. However, that deal never saw the light of the day. 

FTX filed for bankruptcy the very next day on November 11. 

How have cryptocurrencies performed this year:

• Bitcoin has lost around 62% of its value so far this year with the collapse of FTX the latest blow to the volatile sector that has been gripped by a series of liquidity squeezes and bankruptcy filings
•  Bitcoin miners like Marathon Digital Holdings and Riot Blockchain shares have lost about 80% this year. 
• Ethereum has lost 64% of its value this year after gaining for two consecutive years. 

Coinbase latest financials:

• For the quarter ended September 2022, Coinbase reported a loss of $2.43 per share, underperforming expectations of a loss of $1.46 per share
• Its revenue fell 55% year on year to $590.34 million
• For FY23, the company plans to cut costs and is cautiously optimistic about its business going ahead. 

Coinbase relationship with USDcoin adds pressure:

Coinbase partly owns USD Coin with Circle Internet Financial. USD Coin is a digital currency pegged to the United States dollar. Circle recently scrapped plans to go public which does cause some jitters and Binance also seems to be encouraging its investors to stop using USD Coin. 

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.