SILVER SPRING, Md. — Cryptocurrency trading platform Coinbase has lost half its value in the past week, including its biggest one-day drop from 5o date on Wednesday, as the famously volatile crypto market weathers another slump.
Coinbase reported a net loss of $430 million in the first quarter, or $1.98 per share, due to declining sales and active users. Analysts had expected earnings of 8 cents per share. Revenue declined as trading volumes declined, and active monthly users were down 19% from the fourth quarter.
These results are unlikely to surprise investors – the shares of Coinbase Global Inc. were down 43% in the four days leading up to their earnings release Tuesday. On Wednesday, shares fell 26% to $53.72 a share. On the day of the first public offering, just 13 months ago, prices hit $429 per share.
Patrick O’Shaughnessy, an analyst who handles Coinbase for Raymond James, acknowledged in a note to customers that there was an ongoing debate about whether the crypto market was in one of its quintessential funks or whether it was the post-pandemic bubble. Which emptied.
“While management strongly believes that the former will be true, we suspect that there is more than a bit of truth in the latter, especially as crypto has so far failed to serve as an inflation hedge in 2022,” wrote O. Shaughnessy.
Like much of Wall Street, O’Shaughnessy said his firm expects Coinbase to continue losing money in the coming quarters and that the “disadvantages of increased crypto regulation down the road will definitely outweigh the benefits.”
Government officials have made it clear that regulation is coming. In April, Treasury Secretary Janet Yellen said that more government oversight is needed in the fledgling industry and that the Treasury Department will work with the White House and other agencies over the next six months to develop reports and recommendations on digital currencies.
“Our regulatory frameworks need to be designed to support responsible innovation while managing risks – especially those that can disrupt the financial system and the economy,” Yellen said.
On Tuesday, Yellen testified before the Senate Banking Committee, warning lawmakers about stablecoins, digital currencies usually pegged to the dollar or a commodity like gold. Stablecoins essentially promise investors that they can be exchanged for a dollar. In theory, stablecoins are better suited for commercial transactions than other cryptocurrencies that can fluctuate in value. However, a recent run on the TerraUSD stablecoin dropped its weight to just 30 cents, casting doubt among investors about the safety of stablecoins. Terra recovered somewhat to about 68 cents on Wednesday.
“The outstanding stock of stablecoins is growing at a very fast pace, and we really need a consistent federal framework,” Yellen told the committee, adding that legislation on stablecoins could be enacted by 2023.
President Joe Biden signed an executive order on digital assets in March that urged the Federal Reserve to investigate whether the central bank should create its own digital currency. Biden’s declaration also instructed federal agencies to study the impact of cryptocurrency on financial stability and national security.
In a letter to shareholders, Coinbase said it believes current market conditions are not permanent, and it remained focused on the long term while prioritizing product development.