Shares in cryptocurrency exchange Coinbase lost almost a quarter of their value on Wednesday after it posted bleak results, while its chief executive rushed to quell what he said were unnecessary bankruptcy fears.
Coinbase stock fell 23 per cent after it reported a significant slide in its revenues, which missed analysts’ expectations, as well as a sharp fall in trading volumes in its first-quarter results on Tuesday.
The poor results together with concern over a regulatory filing later that day prompted chief executive Brian Armstrong to state on Twitter that Coinbase had “no risk of bankruptcy”.
His comment came after a new disclosure suggested customers could be on the hook for claims against the exchange, sparking alarm among Coinbase’s users.
According to the filing, the crypto that Coinbase holds in custody for users “could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors”. As a result, users may find the platform “more risky and less attractive”, potentially hurting its financial health, the filing said.
But Armstrong rushed to reassure users, apologising for failing to communicate “proactively” when the new wording was added.
2/ We have no risk of bankruptcy, however we included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties. https://t.co/lwmgb1kFtA
— Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022
“There is some noise about a disclosure we made in our 10Q [regulatory filing] today about how we hold crypto assets,” Armstrong tweeted, adding that rather than being at risk of going bust, the exchange changed its terms to satisfy a regulatory requirement.
Analysts at Wedbush noted that Coinbase was “flush with cash” and still investing “aggressively” during the downturn.
In its first-quarter results, the company reported greater losses than expected by Wall Street — $430mn compared with the $47mn analysts had estimated — and predicted that trading volumes and user numbers would continue to fall in the current quarter.
Coinbase shares have lost 67 per cent of their value since the start of the year, with their price falling below $100 for the first time since the company went public in April last year. At the time of its IPO, Coinbase shares were worth $381.
The health of Coinbase’s business has long tracked trends in wider crypto markets, benefiting from a boom in speculative trading by retail investors in the first half of last year. After its public market debut, the company’s profits surpassed more established exchange operators, including CME Group and Intercontinental Exchange during the 2021 bull market.
However, recent interest rate rises have sent investors fleeing from the riskiest corners of global financial markets, causing a crypto bear market that has been dubbed the latest “crypto winter”.
Bitcoin has fallen sharply recently, dropping below $30,000 for the first time since July earlier this week, amid a broader turmoil in cryptocurrency markets caused by the collapse of stablecoin Terra.
Coinbase is also facing regulatory hurdles. On a call with analysts on Tuesday, Armstrong said the company had halted its services in India just a few days after launching in the market because of “informal pressure” from the Reserve Bank of India. Armstrong has previously had run-ins with US regulators, which are currently circling the industry.
Last year, he accused the US Securities and Exchange Commission of “sketchy behaviour” after it threatened to sue the company if it launched a particular lending product. Coinbase later shelved plans for the Lend product.
Despite the rout, Armstrong and other executives repeatedly sought to reassure investors the downturn could be an opportunity for the company, allowing it to focus on diversifying its business, investing in product innovation and hiring talent. The company recently launched a non-fungible token marketplace and has been exploring areas such as crypto derivatives.
Coinbase signed off its shareholder letter with #wagmi, a hashtag popular among the crypto community for “we are all gonna make it”.
