Crypto trading platform Coinbase lost half of its value last week, including its biggest one-day drop on Wednesday as the volatile cryptocurrency market suffered another downturn.
Coinbase reported a net loss of $430 million or $1.98 per share in the first quarter due to declining sales and active users. Analysts expected a profit of 8 cents a share. Revenue fell as trading volume declined, and monthly active users fell 19% QoQ.
“The trend of low crypto asset prices and volatility that began at the end of 2021 continued in Q1 2022,” the company said in a statement from regulators. filing. “These market conditions have had a direct impact on our Q1 2022 results.”
These results should not surprise investors. In the four days leading up to Tuesday’s earnings announcement, Coinbase’s stock plunged 43%. Shares fell 26% on Wednesday at $53.72 per share. On the day of the initial public offering (IPO) just 13 months ago,The company is valued at $86 billion.
The stock is up nearly 3% to $55.30 per share as of Thursday 11:35 EST, with a market cap of around $15 billion.
In a note to clients, Patrick O’Shaughnessy, an analyst covering Raymond James’ Coinbase, acknowledged that there has been an ongoing debate over whether the cryptocurrency market is one of the classic punks or whether this is post-pandemic bubble deflation.
O’Shaughnessy wrote, “Executives strongly believe the former will turn out to be true, but they suspect there is some truth to the latter, especially with cryptocurrencies failing to act as an inflation hedge as of 2022.”
Like much of Wall Street, O’Shaughnessy said his company expects Coinbase to continue to suffer losses over the next few quarters, and that “the downsides of future cryptocurrency regulation growth will definitely outweigh the upsides.”
Customers face bankruptcy risk
However, Coinbase users may feel differently after learning about the lack of bankruptcy protection, one of the major drawbacks of highly unregulated digital assets recently.
In this week’s quarterly earnings report, Coinbase revealed that customers could lose ownership of their assets in the event of bankruptcy. It will become an asset of Coinbase as soon as the debtor files for bankruptcy.
“Since crypto assets in custody may be considered assets of a bankruptcy estate, crypto assets that we hold on behalf of our clients in the event of bankruptcy may be subject to bankruptcy proceedings, and such clients may be treated as follows: Our general unsecured creditors,” the company said in its quarterly filings.
The disclosure, made public after the share price fell, raised an alarm among Coinbase users who were concerned that the company was in danger of bankruptcy. Following the uproar, CEO Brian Armstrong reported on Twitter on Tuesday evening that he had posted a series of posts to appease customers’ fears over disclosures about the company’s stability and the overall security of its crypto assets. Reuters.
In a follow-up tweet, Armstrong said, “There’s a bit of noise today about what we revealed in Q10 on how to hold crypto assets. Tl;dr: Your funds are safe on Coinbase as always.” We’re bankrupt. There is no risk of.”
Meanwhile, government officials have made it clear that regulations are coming. Treasury Secretary Janet Yellen said in April that the emerging industry needs more government oversight and that the Treasury will work with the White House and other agencies over the next six months to develop reports and recommendations on digital currencies.
“Our regulatory framework must be specifically designed to support responsible innovation while managing the risks that can disrupt the financial system and economy,” Yellen said.
On Tuesday, Yellen testified before the Senate Banking Committee, warning legislators about stablecoins, digital currencies typically pegged to commodities like the dollar or gold. In theory, stablecoins are better suited for commercial transactions than other cryptocurrencies that can fluctuate in value. Stablecoins basically promise investors that they can be redeemed for $1. However, the recent run on the TerraUSD stablecoin has seen its value drop to as low as 30 cents, raising doubts about the stablecoin’s safety among investors. Terra recovered somewhat on Wednesday to around 68 cents.
Yellen told the committee that “the outstanding stock of stablecoins is growing at a very fast rate and we really need a coherent federal framework,” adding that legislation for stablecoins could be made by 2023.
signed by President Joe Biden Executive Order on Digital Assets In March, the Fed urged the Fed to investigate whether central banks should create their own digital currencies. Biden’s order also directed federal agencies to study the impact of cryptocurrencies on financial stability and national security.
In a letter to shareholders, Coinbase said the current market situation is not permanent and is focusing on the long-term, prioritizing product development.