Coinbase Stock Drops After Reporting $430 Million Loss: With its stock down 80% since launch day and cryptocurrency prices crashing, what’s next for investors?
- Coinbase’s share price has collapsed since it hit the market last April
- It is now trading at $72 after posting a quarterly loss of $430 million
- With the market entering a sharp downturn, it has posted lower transaction numbers
During the pandemic, interest in cryptocurrencies skyrocketed as cryptocurrency prices reached new heights and institutional investors began to stand up and take notice.
It seemed a logical step, then, for one of the largest cryptocurrency exchanges in the world to take advantage of this and list it on the public market.
Last April, Coinbase made its market debut to much fanfare. Its shares closed their first-day trading at $328 — 31 percent above the reference price above $250. It perfectly represented how cryptocurrency has gone.
Just over a year later, the platform is trading at around $70, down nearly 80 percent. Even for speculators who are used to “foreplay” this is a huge letdown.
Coinbase is now trading at $84, nearly 80% below its initial market price.
Its latest results reflect declining interest in cryptocurrencies as trading volumes fell by more than 40 percent in the first quarter.
It also reported a quarterly net loss of $430 million, compared to a profit of $840 million in the fourth quarter.
What’s behind the platform’s bleak set of results?
Coinbase blamed its disappointing results on a “lower crypto-asset price trend and volatility that started in late 2021.”
It makes its money by taking a small portion of the cryptocurrency traded on its platform.
The market has matured exponentially since the platform was launched in 2012 and is now the largest cryptocurrency platform in the US. It has benefited from rising cryptocurrency prices which has resulted in a huge spike in transactions.
But now the cryptocurrency market is in a tailspin with bitcoin’s value down 50 percent since its November peak and ethereum trading at around $2,400.
Coinbase has always been “incredibly dependent” on the bitcoin price, says Neil Wilson, chief market analyst at Markets.com, which explains why Coinbase has struggled — the stock has fallen more than 40 percent in the past five days.
Crypto expert Glenn Goodman adds that the timing of the Coinbase IPO is partly due to this.
Coinbase shares debuted on the market at the worst possible time for investors – at the height of the crypto frenzy in 2021. So they priced in to a bright future.
But as the bitcoin price suffers the effects of the after-party loss, trading volumes plummet so many investors lose interest. This means less revenue for Coinbase and lower profits.
This will likely only be exacerbated by growing concerns about inflation and the rising cost of borrowing as central banks raise interest rates.
The US Federal Reserve raised interest rates by half a percentage point, the largest hike in more than 20 years.
The Fed’s decisions and the macroeconomic outlook “mean the wheels are going off the whole market,” says Wilson.
Others are more optimistic about Coinbase’s prospects. Cathie Wood’s Ark Investments recently added another $7.2 million to its investment, saying the price crash is a buying opportunity.
But if its recent results are anything to go by, investors will need to prepare for a period of turmoil.
The stock exchange recorded net revenues of $1.16 billion, compared to $2.49 billion in the previous quarter, and incurred a loss of $430 million.
The expected quarterly trade volume fell from $547 billion to $309 billion and assets on the platform fell to $256 billion.
“The first quarter of 2022 continued the trend of lower crypto-asset prices and volatility that began in late 2021. These market conditions directly impacted our first-quarter results,” the exchange said. “But we entered these market conditions with foresight and preparation, and we remain as excited as ever about the future of cryptocurrency.”
Although it was one of the first exchanges in the space that made it easy to buy and hold cryptocurrencies, it is facing increasing competition from smarter platforms with lower fees.