For Coinbase, Crypto Winter is Here

Shares of Coinbase, the leading cryptocurrency exchange, are crashing faster than bitcoin as the crypto winter hits the once Wall Street darling.

With its shares topping $50 on June 14, Nasdaq-listed COIN is 85% down from its launch price of $342, while at $20,000, bitcoin is roughly 70% down from its November high. 2021 above $68,000.

See Also: Coinbase May Be Undeterred By 80% Drop, But Investors Are Clearly Affected

When Coinbase became the first publicly traded cryptocurrency company with a direct listing on April 16, 2021, the New York Times heralded it as a “landmark moment” for the industry, while the Financial Times noted that it was comparing it to the launch of pioneering web browser maker Netscape, a “life-changing technology,” at the height of the dot-com boom.

Which is a far cry from where it is today (June 14) when it announced it had cut about 18% of its workforce, laying off around 1,100 employees as its stock plunged right next to bitcoin, showing definite signs of not have hit bottom. even.

The same day JPMorgan analysts downgraded Coinbase from overweight to neutral and lowered their price target from $171 to $68.

While several other US exchanges, notably and Gemini, announced staff cuts last week, Coinbase is different.

Read More: Curse of the Super Bowl Comes for Cryptocurrencies as Layoffs Rise

For one thing, it is one of the few directly publicly traded companies in the crypto industry, and certainly the one with the highest profile, making it something of a benchmark on Wall Street for crypto.

business talk

Unfortunately, the problem is that, like its competitors, Coinbase’s revenue comes almost entirely from trading volume, which drops when volatility is low and during prolonged downturns, particularly when applied to the entire crypto industry. .

Beyond that, Coinbase CEO Brian Armstrong has spoken much more recently.

“We’re very confident that we could choose profitability over reinvesting in the business,” Armstrong said during his first-quarter earnings shareholder call on May 10. “We tend to see the low period as a great opportunity because we are greedy when others are fearful. We are usually able to acquire great talent in those periods and others pivot, get distracted, get discouraged. And so we tend to do our best work in a down period.”

Shareholders, on the other hand, caused their share price to drop 15%.

Today, Armstrong explained the cuts by saying Coinbase expanded “too fast” during the 2021 bull markets.

“It seems that we are entering a recession after an economic boom of more than 10 years. A recession could lead to another crypto winter and it could last for an extended period,” he said. “While it is difficult to predict the economy or the markets, we always plan for the worst so that we can operate the business in any environment.”

He added: “Our employee costs are too high to effectively manage this uncertain market.”

Call it

Is Coinbase Netscape 2.0? that’s pretty much what PYMNTS’s Karen Webster asked when Coinbase launched. In a skeptical article on April 19, 2021, she pointed out five things she had to believe about the company and its future, and the nearly $64 billion price that investors put on the company in its April 14 listing. april.

See Also: Is Coinbase Netscape 2.0? Here are five things to believe

These were:

  1. Coinbase is a pioneering innovation that will unlock great value.
  2. Coinbase will ignite the crypto economy.
  3. Cryptocurrencies are a currency to transact as fiat currency and not a speculative asset.
  4. Regulators embrace, not throttle, the crypto economy.
  5. Coinbase has a sustainable business model.

Looking at the pioneering innovation, it’s hard not to notice that its trading volume lags far behind that of Binance, though not its US arm, Binance.US. And competitor FTX, which has so far not announced layoffs, surpassed it in volume earlier this month. While very simple and easy to use, Coinbase is not really revolutionary.

As for igniting the crypto economy, Webster argued that it would require Coinbase’s cryptocurrency listings to “go from being a digital asset that people trade to speculate, to currencies that become the foundation for how consumers and businesses transact.” . And not just a way to buy and sell goods and services, but the way, or at least an important way, that people do business because that’s how merchants and other businesses want to be paid for what they sell.”

Although the use of crypto in payments is growing, it remains minimal beyond crypto debit cards (and PayPal) that allow users to spend their digital assets while merchants receive cash just hasn’t happened. This is despite the huge growth in the number of cryptocurrency buyers, which, according to the PYMNTS US Crypto Consumer study, increased from about 16% to 23%.

Read More: The Data Point: 23% of US Consumers Own Crypto in 2021

That’s not the consumer who moves “seamlessly between cash, debit cards, credit cards, and alternative credit to pay for things at merchants would migrate to using cryptocurrencies,” which would require Coinbase’s valuation, Webster said. “For Coinbase to participate in the crypto economy and not just power 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, Coinbase Wallet features include direct deposit, it is far from ubiquitous. And it has a lot of competition, from PayPal among others.

The argument that cryptocurrencies are a currency that people want to use to buy things has some backing.

A quarter of consumers said they want to shop with cryptocurrencies and prefer merchants that accept them, according to the US Crypto Consumer study.

Read more: More consumers are buying crypto and want more ways to spend it

But with bitcoin down 70% in seven months, it has a steep hill to climb.

Whether regulators embrace or throttle the crypto economy, the signs are promising: Two senators have just introduced a bill that would eliminate capital gains tax requirements required by small transactions in crypto, and also the Securities and Exchange Commission. and Securities (SEC), more aggressive. which considers almost all crypto values.

Also Read: Senate Crypto Bill Debuts And Crypto Industry Makes Big Profits

Non-volatile dollar-pegged stablecoins, on the other hand, are showing some signs of growing consumer acceptance: The CEO of crypto payment technology company BitPay recently told Webster that around 12% to 13% of their transactions now use stablecoins like USDC.

However, regulators and elected officials 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 you can turn your wallet into a mainstream payment tool for consumers, possibly. But that’s still an “if”.

What is clear this week is that the trading 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 last quarter century if they are not versed in the dotcom boom or the tech stock market. Netscape may have been the first commercial browser, as a business, but in the end it wasn’t. Others with better technology entered the space and took market share.

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On: PYMNTS’ survey of 2,094 consumers for The Personalized Shopping Experience report, a collaboration with Elastic Path, shows where merchants are doing well and where they need to up their game to deliver a personalized shopping experience.

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