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Market Insights

Stock of the week: Coinbase


A crypto exchange in a crypto bear market…

Another terrible weekend in crypto land. From Friday’s high to Sunday’s low, there were some serious downswings.

You get the picture… Although some of those losses were initially recovered with a bounce from the lows, the bear trend was reinforced and more fuel added to the fire when crypto lender Celsius paused withdrawals, swaps and transfers on their platform. Which begs the question…

If crypto sentiment doesn’t pick up, what might that mean for Coinbase?

The Coinbase share price is already a long way down from the IPO open price of $381, so some negativity has clearly been priced in. For comparison, Coinbase's market cap on IPO day was $86 billion. That’s now been slashed to $13.03 billion.

Could the price head even lower?


The stock price is in a clear downtrend, and fundamentally there’s some logic to that. The majority of Coinbase revenues come from transaction fees and commissions. If there’s less trade, and the value of the traded assets is reduced, it makes sense that the company revenues would take a hit.

Which is exactly what the firm announced in their earnings statement: Total trading volume dropped from $547 billion in Q4 to $309 billion in Q1 2022. Retail monthly user transactions fell too. Down from 11.4 million in Q4 2021 to 9.2 million in Q1 2022. Those factors combined to see revenue fall 27% vs one year ago.

And there’s a clear correlation with the path of cryptocurrencies and the Coinbase share price. Below is an overlay chart of Coinbase on Ethereum. The majority of the time the two are highly correlated.

Coinbase on Ethereum

Coinbase also reported a net loss of $430 million in the first quarter. While the loss wasn’t unexpected, it was higher than analysts anticipated. Even as crypto is struggling, Coinbase is trying to look longer-term.

In February, they announced plans to add 2,000 employees across Product, Engineering and Design in 2022. Hiring is part of the increased expenditure that led to the loss, and they may have been too ambitious on that front. At the start of June, Coinbase announced a hiring freeze and rescinded some accepted employment offers.

It’s a tough time for the business. Internal conflicts are leaking into the public arena too. Over the weekend, an online petition was reportedly leaked by a group of Coinbase workers calling for the Chief Operating Officer Emilie Choi, Chief Product Officer Surojit Chatterjee and Chief People Officer L.J. Brock to leave.

CEO Brian Armstrong took to Twitter to respond:

“...if you have no confidence in the execs or CEO of a company then why are you working at that company? Quit and find a company to work at that you believe in!”

“...in any down market, people want to start pointing fingers and find someone to blame. This is not just in companies btw - countries see increased polarization when things are down.”

“...teams have to pull together and act as one company during difficult periods, not turn on each other. Remember, the enemies are not within, everyone around you is an ally.”

Challenging times for any CEO. Can Coinbase pull it around soon or is there more pain ahead…?

Not investment advice. Past performance is not indicative of future results. Trading cryptocurrency may not be available depending on your country of residence.