The mini rally in cryptocurrencies is not enough to drag crypto exchange Coinbase from the doldrums. After making its debut in April 2021 as one of the largest US listings in history, the share price has crashed. Since the first day’s trading it is down 81 per cent. Trace that decline over bitcoin’s price and it becomes clear that Coinbase has even underperformed the crypto slump.
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Coinbase’s fortunes are entwined with volatile crypto prices. Rising interest rates give retail and institutional investors little incentive to risk their money. Adoption of crypto as a payment alternative or an inflation hedge is poor. As user numbers fall, trading volume and revenue go with it. Coinbase reported a 76 per cent drop in net revenue in the last quarter of 2022 compared with the previous year. Losses reached $557mn.
Sharp cuts, including lay-offs affecting a fifth of jobs, will lower costs. Yet forecasts from S&P Capital IQ show net income falling in the next two years. Coinbase hopes investors will prefer adjusted ebitda as a measure of profitability. Using this, losses were a more palatable $124mn last quarter. However, this excludes large-scale stock-based remuneration.
User growth is expected to climb, albeit slowly. But that depends on subscription and services revenue. This rose a third in the final quarter of the year — a good sign that true believers in alternative finance are willing to keep paying out even in a downturn. Analysts forecast this revenue to double between 2022 and 2024, according to Visible Alpha. If crypto prices continue to rise, subscriptions that offer fee-free trades and services such as staking will account for a smaller percentage of assets on the platform.
This supposes that regulators do not clamp down on the sector entirely. Crypto investors can earn income by using their tokens to validate transactions via staking. This month crypto exchange Kraken agreed to shut down its staking service and pay a fine to the US Securities and Exchange Commission. Coinbase says that its own staking product is different.
Following the debacle at FTX, regulators should push back. That means Coinbase’s future is beyond its control.
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