For Coinbase, Crypto Winter is here

Leading cryptocurrency exchange Coinbase stock plummets faster than bitcoin as crypto winter hits the former Wall Street darling.

With its stock having broken $50 on June 14, Nasdaq-listed COIN is about 85% off its launch price of $342, while at $20,000 bitcoin is about 70% off its November 2021 high. greater than $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 announcement as a “historic moment” for the industry by the New York Times, while the Financial Times noted that it was 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 far cry from what it is today (June 14) when it announced it had cut around 18% of its workforce, laying off around 1,100 employees as its stock plummeted just off the bitcoin – which is showing clear signs of not having bottomed out yet.

The same day as JPMorgan analysts cut Coinbase’s rating went from overweight to neutral and lowered its price target from $171 to $68.

While a number of other US exchanges, including Crypto.com and Gemini, announced staff cuts last week, Coinbase is different.

Read more: Super Bowl curse comes for crypto as layoffs rise

On the one hand, it is one of the few publicly traded companies directly in the crypto industry – and certainly one with the highest profile – making it a Wall Street indicator for crypto.

Business discussion

Unfortunately, the problem is that, like its competitors, Coinbase’s revenue comes almost entirely from trading volume, which declines when volatility is low and during prolonged downturns, especially when it comes to the industry as a whole. cryptography.

Beyond that, Coinbase CEO Brian Armstrong spoke more than recently.

“We are very confident that we could choose profitability over reinvesting in the business,” Armstrong said during his first-quarter earnings call on May 10. fearful. One tends to be able to acquire great talents during these times and others pivot, get distracted, become discouraged. And so, we tend to do our best during a slow period.

Shareholders, on the other hand, drove its share price down 15%.

Today Armstrong Explain the cuts saying Coinbase grew “too fast” during the 2021 bull markets.

“We appear to be entering a recession after an economic boom of more than 10 years. A recession could lead to another crypto winter and could last for an extended period,” he said. “Although 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 labor costs are too high to effectively manage this uncertain market.”

I called him

Does Coinbase Netscape 2.0? that’s pretty much what Karen Webster of PYMNTS asked when launching Coinbase. In a skeptical April 19, 2021 post, she highlighted five things you should believe about the company and its future — and the nearly $64 billion price tag investors put on the company when it listed on April 14. .

See also: Is Coinbase Netscape 2.0? Here are five things you need to believe

They were:

  1. Coinbase is a breakthrough innovation that will unlock enormous value.
  2. Coinbase will ignite the crypto economy.
  3. Cryptocurrencies are a transaction currency just like fiat money and not a speculative asset.
  4. Regulators are embracing, not throttling, the cryptocurrency economy.
  5. Coinbase has a sustainable business model.

When it comes to groundbreaking innovation, it’s hard not to notice that its trading volume is much lower than that of Binance – but not its US arm, Binance.US. And competitor FTX – which has yet to announce any layoffs – overtook it in volume earlier this month. Although it is very simple and user-friendly, Coinbase is not really revolutionary.

In terms of triggering the crypto economy, Webster argued that this would require Coinbase cryptocurrency listings “to shift from a digital asset that people trade for speculation to currencies that become the basis of 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 – people do business because that’s how merchants and other businesses want to get paid for what they are selling.

Although the use of crypto in payments is growing, it is still minimal beyond crypto debit cards (and PayPal) that allow users to spend their digital assets while merchants receive cash. is simply not produced. This is despite the huge growth in the number of crypto buyers, which according to the PYMNTS US Crypto Consumer Study, has increased from around 16% to 23%.

Read more: The data point: 23% of US consumers owned cryptocurrency in 2021

It is not the consumer who moves “fluidly between cash, debit cards, credit cards and alternative credit to pay for things at merchants would migrate to the use of cryptocurrency”, that the Coinbase 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 tries – Coinbase wallet features include direct deposit – it is far from ubiquitous. And there is 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 support.

According to the US Crypto Consumer Study, a quarter of consumers said they want to buy with cryptocurrency and prefer merchants who accept it.

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

But with bitcoin down 70% in seven months, there is 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 remove capital gains tax requirements that small crypto transactions require, as well as the more aggressive Securities and Exchange Commission (SEC), which considers almost all crypto securities.

Also Read: Senate Crypto Bill Debuts and Crypto Industry Scores Big Wins

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

Regulators and elected officials, however, are sufficiently concerned about stablecoins that preventing them from supporting 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 he can turn his wallet into a mainstream payment tool for consumers, maybe. But it’s always 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 analogy with Netscape 2.0? Remember that Netscape is basically unknown to anyone born in the last quarter century if they don’t know about the dot-com boom or the tech stock market. Netscape may have been the first commercial browser, as a company, but ultimately it’s not. Others with better technology entered the space and took market share.

Register here for daily updates on all PYMNTS Crypto coverage.

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NEW PYMNTS DATA: THE CUSTOM PURCHASING EXPERIENCE STUDY – MAY 2022

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

About Jason Jones

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