Coinbase cryptocurrency trading platform has lost half its value last week, including its biggest one-day drop to date on Wednesday as the famous volatile cryptocurrency market suffers another crash.
Coinbase posted a net loss of $ 430 million in the first quarter, or $ 1.98 per share, due to declining sales and active users. Analysts had expected a profit of 8 cents per share. Revenue fell as trading volumes fell and monthly active users fell 19% from the fourth quarter.
“The first quarter of 2022 continued with a trend in both lower cryptocurrency asset prices and volatility that began in late 2021,” the company said in a regulatory document. “These market conditions directly affected our results for the first quarter of 2022.”
These results are unlikely to surprise investors: Coinbase shares fell 43% in the four days leading up to earnings on Tuesday. On Wednesday, shares fell 26% to $ 53.72 per share. On the day of its initial public offering just 13 months ago, prices reached $ 429 per sharevaluing the company at $ 86 billion.
Shares rose nearly 3% to $ 55.30 a share at 11:35 a.m. EST on Thursday, bringing its market capitalization to approximately $ 15 billion.
Patrick O’Shaughnessy, an analyst who covers Coinbase for Raymond James, acknowledged in a note to clients that there was an ongoing debate over whether the cryptocurrency market was in one of its typical funks or whether it was about deflating the post-pandemic bubble.
“While management firmly believes that the former will be true, we suspect that there is more than a little truth about the latter, especially as cryptography has not served as a cover for inflation so far in 2022,” O wrote. ‘Shaughnessy.
Like much of Wall Street, O’Shaughnessy said his company expects Coinbase to continue losing money in the coming quarters and that the “cons of increased cryptocurrency regulation in the future will far outweigh the benefits.”
Customers face the risk of bankruptcy
Coinbase users may feel differently, however, after recently experiencing a major drawback to their largely unregulated digital assets: the lack of protection against bankruptcy.
In its quarterly earnings report this week, Coinbase revealed that in the event of bankruptcy, customers could lose ownership of their assets, which would instantly become the property of Coinbase as a debtor declaring bankruptcy.
“Because the cryptographic assets held in custody may be considered the property of a bankruptcy estate, in the event of bankruptcy, the cryptographic assets we hold in custody on behalf of our clients may be subject to bankruptcy proceedings and such clients may be treated as our unsecured general creditors, “the company said in a quarterly statement.
The disclosure, made after the fall in stock prices, raised alarms among Coinbase users, worried that the company was at risk of bankruptcy. The uproar caused CEO Brian Armstrong to post a series of Twitter posts on Tuesday evening to alleviate customer fears aroused by the disclosure about the company’s stability and overall security of its cryptographic assets, Reuters reported .
“There’s a bit of a rumor about a disclosure we made today in our 10Q about how we keep cryptographic assets. Tl; dr: Your funds are secure in Coinbase, as they always have been,” Armstrong tweeted, adding in a later tweet. “We have no risk of bankruptcy.”
1 / There is some noise about a disclosure we made today in our 10Q about how we maintain cryptographic assets. Tl; dr: Your funds are secure in Coinbase, as they always have been.
– Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022
Meanwhile, government officials have made it clear that regulation is approaching. Treasury Secretary Janet Yellen said in April that more government oversight is needed in the nascent industry and that for the next six months, the Treasury will work with the White House and other agencies to develop reports and recommendations on currencies. digital.
“Our regulatory frameworks need to be designed to support responsible innovation while managing risks, especially those that could disrupt the financial system and the economy,” Yellen said.
Notice of stable currencies
On Tuesday, Yellen testified before the Senate Banking Committee, warning lawmakers about stable currencies, which are digital currencies that are often tied to the dollar or a commodity like gold. In theory, stable currencies are more suitable for commercial transactions than other cryptocurrencies that can fluctuate in value. Stable currencies basically promise investors that they can be exchanged for a dollar. However, a recent run of the stablecoin TerraUSD reduced its value to 30 cents, sowing doubt among investors about the security of the stablecoins. Land recovered slightly, to about 68 cents on Wednesday.
“The stable currency stock is growing at a very fast pace and we really need a consistent federal framework,” Yellen told the committee, adding that stable currency legislation could be drafted in 2023.
President Joe Biden signed an executive order on digital assets in March urging the Federal Reserve to explore whether the central bank should create its own digital currency. The Biden Order also directed federal agencies to study the impact of cryptocurrency on financial stability and national security.
In a letter to shareholders, Coinbase said it believed current market conditions were not permanent and remained focused on the long term while prioritizing product development.
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