Latency problems for the Coinbase exchange

Coinbase, a prestigious exchange platform, has experienced limited services amid recent market turmoil. 

The platform is reportedly facing latency issues due to the high level of registrations and transfers of new users to the platform.

Specifically, Coinbase was either down or experienced intermittent latency issues on 8 November in the midst of market turmoil, according to user complaints on Twitter. 

This news followed the disclosure earlier in the day that cryptocurrency exchange Binance intends to acquire its rival FTX.

Coinbase is down: problems related to excessive new users 

According to Twitter users, services were limited on the exchange, with problems related to platform connectivity and unconfirmed rumors of blocked withdrawals.

In fact, Mason Versluis tweeted on 8 November: 

“BREAKING: Coinbase is DOWN! Several services are down right now. Now y’all seeing real bear market dealings.”

Similarly, on its support profile, Coinbase said it was experiencing network connection problems for Coinbase.com, Coinbase Pro, and Coinbase Prime. This reportedly resulted in difficulties for users to access them. 

Those who managed to login experienced slow loading on the Web and the mobile app. Coinbase claimed that the problem was related to the high level of sign-ups and transfers of new users to the platform. 

Coinbase’s official Support Twitter account on the same day wrote: 

“We’ve implemented a fix and latency has improved dramatically. Due to the high level of new user sign-ups and transfers to Coinbase today, some customers had trouble signing up / experienced delays signing in.”

In any case, Coinbase assured investors of minimal exposure to its rival FTX after concerns over the latter’s financials dragged the FTT token to its lowest since early 2021.

Indeed, Chief Financial Officer, Alesia Haas, wrote in a blog: 

“Coinbase and our customers are not in any direct danger of liquidity or credit risk. Regardless of whether the Binance/FTX transaction completes, we have very little exposure to FTX and we have no exposure to its token, FTT.”

What is the reason for the market turbulence that has also put Coinbase in trouble?

The market turbulence that threatened to bring even Coinbase to its knees was due to specific events that happened on the day of 8 November. 

In fact, the market turbulence was triggered by the announcement by FTX founder and CEO Sam Bankman-Fried, or SBF, of an agreement on a strategic transaction with Binance, with the aim of acquiring FTX. 

This followed Binance’s decision to liquidate 23 million FTT tokens. As a result, Binance’s statement triggered a liquidity crisis at FTX. The agreement between the two has been likened to a chess move by some, insinuating that Binance’s strategy intentionally led to the deal.

Specifically, Binance signed the deal to buy FTX to help cover a “liquidity crisis” at the rival exchange, marking an abrupt change in fortunes for billionaire Bankman-Fried.

The series of tweets triggered a sell-off of FTX’s token that broke below the pattern support line. The sell-off has continued and the token is down more than 76% in the past 24 hours, trading at $5.09 at press time.

Importantly, FTT is the 30th largest digital currency with a value of $2 billion, according to CoinMarketCap. Amid talk of pressure on FTX’s financial data, FTT lost a third of its value and dragged other major digital assets down.

Hours after the deal, Binance CEO Changpeng Zhao, or CZ, also noted on Twitter that the exchange will soon begin using proof-of-reserve, pointing out that banks operate with fractional reserves. Whereas, cryptocurrency exchanges should not

Coinbase is in crisis: here’s what we know

Coinbase, a Nasdaq-listed platform, seems to have been showing signs of crisis for quite some time now. 

Indeed, the platform posted a loss of $2.43 per diluted share in the third quarter of 2022 compared to earnings of $1.62 per share in the same period a year ago. 

This is because its main revenue driver, cryptocurrency trading, went down in the wake of the market crash. Specifically, the second-largest cryptocurrency exchange lost $545 million, recording its third consecutive unprofitable quarter on total revenues of $590 million. 

All this is worse than the profit of $406 million on revenues of $1.3 billion in the same quarter last year. Numbers slightly lower than the FactSet consensus forecast: loss of $2.38 per share on sales of $641 million. 

In a letter to shareholders, the company itself described the quarter as mixed, noting that transaction revenues were hurt significantly by conditions in the cryptocurrency market and the broader economy.

The Coinbase platform went public in 2021, when cryptocurrencies were experiencing a multi-year surge and the price of Bitcoin had risen to nearly $70,000. 

So much so that by the end of 2021 Coinbase had earned $3.1 billion. 

In general, the cryptocurrency market peaked at the end of 2021 before collapsing. Thus, in the first three quarters of this year, the company lost a total of 2 billion. 

Most of Coinbase’s revenue comes from trading, and the company’s total exchange volume fell to 159 billion in the third quarter from 327 billion a year ago.

The only apparent bright spot for Coinbase is that users with monthly transactions, or MTUs, rose to 8.5 million in the third quarter from 7.3 million a year ago, but down from 9 million in the second quarter. 

Users with monthly transactions are those who make at least one transaction per month. In June, the company laid off 18% of its staff, the first job cut since its founding in 2012. The company has also rolled up its sleeves to diversify revenue streams, including custody fees and interest.