Markets live, Thursday, May 12, 2022

Cryptocurrency trading platform Coinbase lost half of its value over the past week, including its biggest one-day drop yet overnight as the crypto market, famous for its volatility, resists a new crisis.

Coinbase reported a net loss of $430 million in the first quarter due to lower sales and active users. Revenue was down due to lower trading volumes and monthly active users were down 19% from the fourth quarter.

These results are unlikely to have surprised investors — Coinbase Global Inc. shares were down 43% in the four days to Tuesday’s earnings release. On Wednesday (US time), shares fell 26% to US$53.72 per share. On the day of its IPO just 13 months ago, prices hit $429 per share.

Shares of Coinbase Global fell four-fifths from a peak in November.Credit:Bloomberg

Patrick O’Shaughnessy, an analyst who covers Coinbase for Raymond James, acknowledged in a note to clients that there is an ongoing debate about whether the crypto market is in one of its typical funks. or if it was the post-pandemic bubble that was deflating.

“While management strongly believes the former will prove to be true, we suspect there is more than a little truth to the latter, particularly with the crypto failing to serve as a hedge against the inflation so far in 2022,” O’Shaughnessy wrote.

Like much of Wall Street, O’Shaughnessy said his firm expects Coinbase to continue to lose money over the next few quarters, and that “the downsides of increased crypto regulation l ‘will definitely outweigh the benefits’.

Government officials have made it clear that regulation is coming. Treasury Secretary Janet Yellen said in April that greater government oversight was needed in the nascent industry and that over the next six months the Treasury would work with the White House and other agencies to develop reports and recommendations on digital currencies.

“Our regulatory frameworks must be designed to support responsible innovation while managing risks, especially those that could disrupt the financial system and the economy,” Yellen said.

On Tuesday, Yellen testified before the Senate Banking Committee, warning lawmakers against stablecoins, which are digital currencies typically pegged to the dollar or a commodity like gold.

In theory, stablecoins are better suited for trading transactions than other cryptocurrencies that can fluctuate in value. Stablecoins essentially promise investors that they can be exchanged for a dollar.

However, a recent run on the TerraUSD stablecoin caused its value to drop to 30 US cents, casting doubt among investors about the safety of stablecoins. Terra recovered somewhat, to about 68 US cents on Wednesday.

“The circulating stock of stablecoins is growing at a very rapid rate and we really need a cohesive federal framework,” Yellen told the committee, adding that stablecoin legislation could be in place by 2023.

President Joe Biden signed an executive order on digital assets in March that urged the Federal Reserve to consider whether the central bank should create its own digital currency. Biden’s 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 believes current market conditions are not permanent and it remains focused on the long term while prioritizing product development.


About Brandon A. Hood

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