Top cryptocurrency exchange Coinbase’s stock is crumbling faster than bitcoin as crypto winter hits the one-time Wall Street darling.
With its stock having broken $50 on June 14, Nasdaq-listed COIN is about 85% off its $342 launch price, while at $20,000, bitcoin is roughly 70% off its November 2021 high above $68,000.
See also: Coinbase May Be Unfazed By 80% Drop, but Investors Are Clearly Shaken
When Coinbase became the first cryptocurrency company to go public with a direct listing on April 16, 2021, it was heralded as a “landmark moment” for the industry by the New York Times, while the Financial Times noted that it was being compared to the launch of pioneering web browser maker Netscape — a “life changing technology” — at the height of the dot-com boom.
Which is a long way from where it is today (June 14) when it announced it had cut about 18% of its workforce, laying off about 1,100 employees as its stock tumbles right next to bitcoin — which shows definite signs of not having hit bottom yet.
On the same day that JPMorgan analysts cut Coinbase’ rating from overweight to neutral and dropped its price target from $171 to $68.
While a number of other U.S. exchanges, notably Crypto.com and Gemini, have announced staff cuts in the past week, Coinbase is different.
Read more: Super Bowl Curse Comes for Crypto as Layoffs Mount
For one thing, it’s one of the few publicly listed companies directly in the crypto industry — and certainly the one with the highest profile — making it something of a Wall Street bellwether for crypto.
Trading Talk
Unfortunately, the problem is that like its competitors, Coinbase’s revenue comes almost entirely from trading volume, which falls when volatility is low and during prolonged downturns — particularly when it goes across the whole crypto industry.
Beyond that, Coinbase CEO Brian Armstrong has talked bigger than most recently.
“We are highly confident that we could choose profitability over reinvesting in the business,” Armstrong said during its first-quarter earnings shareholders call on May 10. “We tend see the down period as a big opportunity because we’re greedy when others are fearful. We tend to be able to acquire great talent during those periods and others pivot, they get distracted, they get discouraged. And so, we tend to do our best work in a down period.”
Shareholders, on the other hand, sent its stock price down 15%.
Today, Armstrong explained the cuts by saying Coinbase expanded “too quickly” during the 2021 bull markets.
“We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period,” he said. “While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.”
He added, “Our employee costs are too high to effectively manage this uncertain market.”
Called it
Is Coinbase Netscape 2.0? that’s roughly what PYMNTS’ Karen Webster asked when Coinbase launched. In a skeptical April 19, 2021 article, she pointed to five things you had to believe about the company and its future — and the nearly $64 billion price tag investors put on the company at its April 14 listing.
See also: Is Coinbase Netscape 2.0? Here Are Five Things You Must Believe
These were:
Looking at path-breaking innovation, it’s hard not to notice that its trade volume is far below that of Binance — although not its U.S. arm, Binance.US. And competitor FTX — which has not, so far, announced layoffs — overtook it in volume earlier this month. While it is very simple and user friendly, Coinbase isn’t really revolutionary.
As for igniting the crypto economy, Webster argued that would require the cryptocurrencies Coinbase lists to “transition from being a digital asset that people trade for speculation, to currencies that become the basis for how consumers and businesses transact. And not just a way to buy and sell goods and services, but the way — or at least a major way — that people do business because that is how merchants and other businesses want to be paid for what they sell.”
Although crypto usage in payments is growing, it’s still minimal beyond crypto debit cards (and PayPal) that let users spend their digital assets while merchants receive cash simply hasn’t happened. This despite huge growth in the number of crypto buyers, which the PYMNTS U.S. Crypto Consumer study said had grown from about 16% to 23%.
Read more: The Data Point: 23% of US Consumers Owned Cryptocurrency in 2021
That is not the consumer moving “fluidly between cash, debit cards, credit cards and alt credit to pay for things at merchants would migrate to using cryptocurrency,” that Coinbase’s valuation would require, Webster said. “For Coinbase to participate in the crypto economy and not just ignite it, consumers would also use the Coinbase wallet primarily, but not exclusively, to buy, sell, hold and pay.”
See also: Can Coinbase Win the Wallet War Without Taking Stock of What Consumers Want?
While Coinbase is trying — the Coinbase Wallet’s features include direct deposit — it’s a long way from being ubiquitous. And it’s got a lot of competition, from PayPal among others.
The argument that cryptocurrencies are a currency that people want to use to buy things does have some support.
A quarter of consumers said they want to shop with cryptocurrency and prefer merchants who accept it, the U.S. Crypto Consumer study found.
Read more: More Consumers Buying Crypto and Want More Ways to Spend It
But with bitcoin down 70% in seven months, it’s got a steep hill to climb.
Whether regulators will embrace or strangle the crypto economy, the signs are promising — two senators have just introduced a bill that would remove the capital gains tax requirements that small transactions in crypto require, and also the more aggressive Securities and Exchange Commission (SEC), which considers almost all crypto securities.
Also read: Senate Crypto Bill Debuts and Crypto Industry Gets Big Wins
Non-volatile, dollar-pegged stablecoins, on the other hand, are showing some signs of growing acceptance by consumers — crypto payments technology firm BitPay’s CEO recently told Webster that about 12% to 13% of its transactions now use stablecoins like USDC.
Regulators and elected officials, however, are concerned enough about stablecoins that preventing them from taking over the payments economy is a driving force in the push for central bank digital currencies or CBDCs,
Finally, is Coinbase’s business model sustainable? Well, if it can break its wallet into a mainstream payment tool for consumers, possibly. But that’s still an “if.”
What is clear this week is that the trade volume revenue model of Coinbase and other crypto exchanges is not.
As for that Netscape 2.0 analogy? Remember that Netscape is basically unknown to anyone born in the past quarter-century if they aren’t versed in the dot-com boom or tech stock market. Netscape may have been the first commercial browser, as a business, but in the end, it didn’t. Others with better tech entered the space and took market share.
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