Coinbase shares sink after it reports $430m loss: With its stock down 80% since launch day and crypto prices crashing what’s next for investors?
- Coinbase’s share price has crashed since its market debut last April
- It is now trading at $72 after incurring a $430m quarterly loss
- With the market in a tailspin it has reported lower transaction numbers
During the pandemic, interest in cryptocurrency soared with prices of popular coins reaching new heights and institutional investors starting to sit up and take notice.
It seemed a logical step, then, for one of the world’s biggest cryptocurrency exchanges to capitalise on this and list on the public market.
Last April, Coinbase made its market debut to much fanfare. Its shares closed their first day’s trading at $328 – 31 per cent above the reference price above $250. It represented just how mainstream cryptocurrencies had gone.
A little more than a year later, the platform is trading at about $70, a fall of nearly 80 per cent. Even for speculators used to ‘hodling’ that is a big drop.
Coinbase is now trading at $84, nearly 80% lower than its market debut price
Its recent results reflect waning interest in cryptocurrencies as trading volumes plummeted more than 40 per cent in the first quarter.
It also posted a quarterly net loss of $430million compared with a profit of $840million in the fourth quarter.
What is behind the platform’s grim set of results?
Coinbase has blamed its disappointing results on the ‘trend of both lower crypto asset prices and volatility that began in late 2021’.
It makes its money by taking a small cut of the cryptocurrencies traded on its platform.
The market has matured considerably since the platform’s launch in 2012 and it is now the biggest crypto platform in the US. It has benefited from the rising crypto prices which has prompted a big rise in transactions.
But now the crypto market is in a tailspin with the value of bitcoin dropping 50 per cent since its November peak and Ethereum trading at around $2,400.
Neil Wilson, chief market analyst at Markets.com says Coinbase has always been ‘incredibly reliant’ on the price of bitcoin, which goes some way in explaining why Coinbase has suffered – the stock has dropped more than 40 per cent in the past five days.
Crypto expert Glen Goodman adds the timing of Coinbase’s IPO is partly to blame.
‘Coinbase shares debuted on the market at the worst possible time for investors – right at the peak of 2021’s crypto mania. So they priced in a glittering future.
‘But as bitcoin’s price suffers the hangover after the party, trading volumes have come way down as many investors lose interest. This means less revenue for Coinbase and way less profit.’
This is likely only going to be exacerbated by growing concerns over inflation and the higher cost of borrowing as central banks hike interest rates.
The US Federal Reserve raised its rate by half a percentage point, its biggest rate hike in more than 20 years.
Wilson says the Fed’s decisions and the macroeconomic outlook ‘means the wheels are coming off the whole market’.
Others are more bullish on Coinbase’s prospects. Cathie Wood’s Ark Investments recently added another $7.2million to its investment, saying the price collapse is a buying opportunity.
But if its latest results are anything to go by investors will need to brace themselves for a period of turbulence.
The exchange reported net revenue of $1.16billion, compared to $2.49billion in the previous quarter, and incurred a loss of $430million.
As anticipated quarterly trade volume was down from $547billion to $309billion and assets on the platform fell to $256billion.
‘The first quarter of 2022 continued a trend of both lower crypto asset prices and volatility that began in late 2021. These market conditions directly impacted our Q1 results,’ the exchange said. ‘But, we entered these market conditions with foresight and preparation, and remain as excited as ever about the future of crypto.’
While it was one of the first exchanges in the space that made it easy to buy and hold crypto, it is facing increasing competition from platforms that are more nimble and have lower fees.