The fortunes of Coinbase, the largest listed US cryptocurrency exchange, are inextricably tied to the price of bitcoin, the world’s largest cryptocurrency. It makes sense that a crash in crypto prices would leave Coinbase shares down by almost two-thirds since the start of the year.
This drop is inclusive of a rally in recent days. News that Coinbase has partnered with BlackRock — an asset manager with more than $8tn in assets — has helped add more than a tenth to Coinbase’s equity value. BlackRock will integrate Coinbase services for its big customers.
If large sums of institutional money are about to flow into cryptos then prices should recover further. But what other big fund clamours to invest in bitcoin now?
The BlackRock deal was probably dreamt up when crypto prices were riding high. Now bitcoin is trading where it was at the end of 2020. Demand has evaporated. In the first quarter Coinbase revenues fell 27 per cent from the previous year. The second quarter may be worse.
Block is another company created in San Francisco that hitched its wagon to crypto. It reported a 6 per cent drop in revenues in the last quarter as a result of falling consumer demand for bitcoin trading.
The crypto crash is not Coinbase’s only problem. The US Securities & Exchange Commission has charged a former employee with insider trading and stated that some tokens involved were securities. This classification could impose a heavy regulatory burden on all digital asset exchanges.
Coinbase won customers by making it simple to trade in the wild west of digital tokens. A direct listing in 2021 added to perceived respectability. But the business has over-reached itself. Competition from rival platforms such as Binance, which offers lower fees on trades, encouraged it to add many more tokens. That squeezed margins.
The US crypto exchange has hopes for subscriptions and services, where revenues are rising. But this accounts for just 13 per cent of the total. While crypto trading volumes remain depressed, so will Coinbase shares.
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