Coinbase, the largest crypto exchange in the United States, fell more than 26% on Wednesday after the company posted earnings that far exceeded expectations. The new drop reflects a staggering 87% decline in Coinbase’s market capitalization, meaning the company has lost around $85 billion since its IPO.
Reacting to the massive drop in Coinbase shares, former Twitter CEO Jack Dorsey called business a “casino”. The company also faced backlash recently after adding a new disclosure regarding its retail users’ legal claims in the event of bankruptcy.
Coinbase revenue misses expectations, COIN plunges
On Tuesday, Coinbase shared its results for the first quarter of the year. The cryptocurrency exchange reported a quarterly loss of $430 million and a 19% drop in monthly users. The company also missed revenue expectations, with $1.17 billion reported versus $1.48 billion expected, according to Refinitiv.
Shares of the company, which were already in a bad position due to a broader slump in crypto markets, plunged further after the disappointing earnings report. Shares of the company fell more than 15% on Tuesday and another 26% yesterday. Right now, the company’s shares are down about 10% pre-market.
Considering COIN briefly touched $381 in mid-April last year when the company went public, its current price of around $50 reflects a staggering 87% drop. In terms of market capitalization, Coinbase has lost around $85 billion in just over a year.
Meanwhile, Coinbase executives linked the falling stock price to the volatile nature of the cryptocurrency, arguing that the company would perform much better in the long run. On Wednesday, CEO Brian Armstrong quoted famed venture capitalist Fred Wilson in a tweet, saying “markets are irrational in the short term but not in the long term.”
Coinbase may still be attractive given its large cash reserves and the fact that it has posted strong profits in recent quarters. However, the company’s price-to-earnings (P/E) ratio, a ratio that indicates whether a company is overvalued or undervalued, fell to 3.5. This is alarming for investors, as public company P/E ratios are typically well above 10.
“Coins P/E went from 140 to 5 in a year, I don’t remember seeing this kind of drop”, Maya Zehavi, founder and CEO of Stealthy new venture, mentioned.
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New Coinbase Disclosure Warns Users They Could Lose Their Crypto In Bankruptcy
Along with its earnings report, Coinbase also released a new disclosure stating that the company would have the right to hold its retail users’ crypto assets as property of the bankruptcy estate, should the company go bankrupt. The disclosure said:
- “Because crypto assets held in custody may be considered the property of a bankrupt estate, in the event of bankruptcy, crypto assets held by us in custody on behalf of our clients could be subject to legal proceedings. bankruptcy and these customers could be treated as our general unsecured creditors.
Jack Dorsey, who called the stock market a casino when reacting to its share price plunge, hinted that the disclosure could mean the company is in a tough spot. “A lot to do for nothing,” he says.
However, in a series of tweets, Armstrong mentioned the new disclosure was necessary due to a new SEC rule. He assured users that all funds are safe and the company has no risk of bankruptcy.
Nevertheless, Goldman Sachs has warned investors that Coinbase is highly unlikely to return to recent levels of profitability in the current market rout. The bank also lowered its 12-month price target for COIN to $80 from the previous $240. The bank said:
“In an environment where the market is focused on profitability, recession risk and the fading of pandemic-driven exuberance in retail, we believe COIN stocks will struggle to outperform in the near term. “
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About the Author
Ruholamin Haqshanas is an accomplished crypto and finance journalist with over two years of writing experience in the field. He has a strong understanding of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi) and the emerging non-fungible token (NFT) market. He is an active user of digital assets for remittances.