‘Crypto Winter’ Sparks Coinbase Stock Crash As Bitcoin, Ether And Other Major Cryptocurrencies Crater

Topline

Shares of popular crypto-brokerage Coinbase plummeted to a record low Wednesday after the firm reported a worse-than-expected loss spurred by dwindling trading volumes—prompting a flurry of analysts to downgrade the stock as the price of bitcoin, ether and other major cryptocurrencies plummet to nearly one-year lows.

Key Facts

Coinbase stock plunged as much as 24% to a record low of $52.80 on Wednesday, posting its worst-one day drop ever and pushing the stock down nearly 84% from a peak in November, the same month bitcoin also hit its latest record high.

Triggering the stock plunge, Coinbase revealed its first loss as a publicly traded company after the market closed on Tuesday, reporting a second-quarter loss of $430 million (compared to a $771 million profit one year earlier) and revenues that fell 53% to $1.2 billion.

In a letter to shareholders, the firm said plunging crypto prices and volatility that began late last year “directly impacted” results and pushed trading volume down to $309 billion (8% lower than last year), but that it remains “as excited as ever” about the future of crypto given developments, like the launch of its marketplace for non-fungible tokens.

At least seven analysts downgraded Coinbase shares or lowered the stock’s price target after the earnings report, with Wedbush analyst Moshe Katri noting the company attributed the loss to increased investments in new products “despite what’s emerging to be a crypto winter.”

Fueling uncertainty on Wednesday, the price of bitcoin briefly plummeted below $30,000—hitting its lowest point since June—after the Labor Department’s monthly consumer price index report showed inflation exceeded expectations despite cooling last month.

Though Coinbase reiterated that volatility is part of cryptocurrency’s long-term price cycles, Raymond James analyst Patrick O’Shaughnessy told clients he “suspects there is more than a bit of truth” that the recent selloff could be more serious—”particularly with crypto failing to serve as an inflation hedge thus far in 2022.”

Key Background

Coinbase debuted on the public market last April after a watershed year for cryptocurrencies, fueled largely by growing institutional adoption. The firm’s market capitalization hit a record closing high of $76.9 billion on November 9—just one day before bitcoin hit its latest peak of roughly $69,000. However, recent months have proved difficult for the nascent market. Bitcoin has since collapsed more than 55% amid mounting fears over the Federal Reserve’s efforts to curb inflation by easing pandemic-era stimulus measures. Once worth more than $3 trillion, the cryptocurrency market now commands about $1.5 trillion in value.

What To Watch For

“Over the longer-term, we continue to believe that significant retail pricing pressure is a matter of when, not if, and also believe the cons of increased crypto regulation down the road will decidedly outweigh the pros,” writes O’Shaughnessy. Beginning in late 2017, a wave of early regulatory crackdowns—largely targeting then-booming initial coin offerings—sparked a nearly 80% crash in cryptocurrency prices and a years-long bear market.

Contra

On Tuesday, Goldman Sachs analyst Will Nance downgraded Coinbase shares but said he still believes the stock is “the blue chip way to gain exposure to the crypto native ecosystem.” Other analysts were also less bearish, with Needham’s John Todaro keeping a buy rating and saying he “remains excited” about Coinbase’s blockchain rewards and cloud-subscription services.

Surprising Fact

Bitcoin has tumbled 35% so far this year, while ether, XRP and Cardano’s ada have plummeted 39%, 47% and 57%, respectively.

Further Reading

Unstable Stablecoin: How Crypto’s Crash Broke The Buck For TerraUSD (Forbes)

Coinbase Skyrockets In Nasdaq Listing, Landing $105 Billion Valuation On First Day Of Trading (Forbes)