How bad is a crypto market crash? Take a Look at Coinbase

Among those recovering from loss of billions of dollars cryptocurrency crashNo company has taken a bigger competition than Coinbase. The country’s largest and first publicly traded crypto exchange, Coinbase, has seen its stock price drop by 81% this year, and recently announced its plans. shed a fifth of your workforce,

With Coinbase reporting a $430 million first-quarter loss, some hedge funds are starting to short the stock, which means Wall Street is betting on an even further decline in Coinbase’s value.

But all is not lost for the exchange, according to analysts, who see more bounce in the crypto bubble than in the current crash. Despite their recent struggles, they anticipate that Coinbase will make it through this crypto market downturn and eventually thrive. That’s because the company has learned how to survive such a downturn, analysts say.

Coinbase, founded in 2012, several years before the cryptocurrency craze or the current “crypto winter” arrived in the US, now boasts a market cap of $13.8 billion with nearly 5,000 employees and $256 billion in assets on the platform. have taken.

“Coinbase has been through a few crypto winters and, each time, they have clearly survived,” said John Todaro, a crypto asset researcher at Needham & Co. The winter would have to get progressively worse for Coinbase to be in any real danger.”

Coinbase’s $6 billion reserve has boosted his confidence. Todaro said that money is “a very solid cushion” to help Coinbase get through the turbulent times.

Profit based on number of transactions

Coinbase did not respond to a request for comment on how the crypto market has affected trading. CEO Brian Armstrong said during an earnings call in May that Coinbase executives “do their best work in down periods.”

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Still, one reason Coinbase struggles is that there are fewer people transacting on the platform. Coinbase makes the majority of its revenue by charging a 1% fee on each crypto transaction, but company executives said in May that transaction volume has slowed. The company said that the number of Coinbase monthly users has dropped by 19% since the end of last year.

Devin Ryan, equity research analyst at JMP Securities, said the decline in trading makes Coinbase’s $6 billion war chest even more significant.

“They are one of the best capitalized firms,” ​​Ryan told CBS Moneywatch. “And even though they have a business model today that is based on transactions, they are building one of the most diverse businesses in the (crypto) industry.”

The crypto recession has been exacerbated by rising inflation

Coinbase is not only seeing fewer transactions, but crypto prices have fallen to their lowest levels this year.

The price of bitcoin, ethereum and other major tokens began falling this spring as rising inflation tightened its grip on the US economy. As the price of everyday items like gas and groceries soared, investors began to withdraw their money from investments they considered risky, including cryptocurrencies. As investors sold their digital assets, the price of crypto fell further.

Stable coins are losing their pegs The US dollar has also played a role in the departure of investors from crypto in recent months. Those who had become dependent on stablecoins like Luna and TeraUSD to save their money from the wild swings of many cryptocurrencies were stunned to see that both of those coins fell below $1 in May – something that Should never have happened. The fall in the price of the two benchmark stablecoins further eroded investor confidence in the crypto market.

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Meanwhile, the price of bitcoin, which peaked at around $68,000 last November, is down 56% from the beginning of the year, trading at around $20,250 as of Wednesday. Ripple is down 61% to about 30 cents and Ethereum is down nearly 70% to $1,140.

Ryan believes that the recent price drop will not last forever and investors will return to crypto. According to Ryan, once they do, they will use Coinbase.

“We expect them to gain even more market share after that, but there is no doubt that we are in a difficult moment in the market right now,” he said.

As crypto goes the market, so goes Coinbase

Analysts say Coinbase is a real-time case study of what happens to the crypto company when the price of bitcoin and tokens fall. Analysts said that the future of Coinbase depends on the strength of prices, as does the futures of other major crypto platforms such as FTX and Kraken.

The cryptocurrency landscape is much broader and richer now than it was in April 2021 when coinbase went public And its shares were trading at around $400 per piece. Competitors like Binance and have caught the attention of investors, while Crypto scams and hacks become more lucrativeLeading federal lawmakers pushed for more regulation around digital assets.

Analysts said all the activity has created even more division between pro-crypto investors and skeptics. How quickly Coinbase bounces depends on how many investors “believe there is a big future for digital assets,” Ryan said.

“If you have a positive view of the future of the crypto economy and you are excited to have it, that should be your view on Coinbase,” he said.

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