Cryptocurrency platform and exchange Coinbase Global Inc. (NASDAQ:COIN) The stock has fallen along with the crypto market and the price of bitcoin. However, things got worse after the FTX disaster when it hit new all-time lows of $40.15 on December 9, 2022. Year-end tax loss selling is underway as investors reconsider the merits of cryptocurrency.
Coinbase has stated that it has no exposure to FTX or its token FTT as it cannot be traded on the platform, but indirect exposure is a different story. The company has downgraded most of its metrics with the exception of subscriptions and services, for which it raised fiscal 2022 guidance to over $700 million from $600 million.
Bitcoin drives out believers
Bitcoin collapsed from a high of $69,000 on November 8, 2021 to a low of $15,480 on November 21, 2022. Cryptocurrency has no intrinsic value but moves based on supply and demand resulting from news, rumour, speculation, regulatory action and general sentiment.
It was once considered useful as a store of value dating back to the Cyprus banking crisis of 2013 when citizens converted their bank savings into bitcoin to avoid the government bailout of their banks by using their citizens’ bank deposits confiscated. That was then, this is now. Nor has bitcoin proven itself as a store of value, a stable currency for purchasing goods and services, or a hedge against inflation, interest rates, or a falling stock market.
In fact, the entire crypto industry lost over $2 trillion in the last year alone in a global game of pump-and-dump that has seen 75% of Bitcoin investors lose money. companies like MicroStrategy Incorporated (NASDAQ:MSTR) Putting their money into Bitcoin saw their shares plummet from a high of $1,315 in February 2021 to a low of $134.09 just 15 months later.
Tesla Inc (NASDAQ:TSLA) was able to divest 75% of its $1.5 billion stake in Bitcoin to suffer an estimated loss of just -$170 million. Bitcoin miners like Marathon Digital Holdings Inc. (NASDAQ: MARA) and Riot Blockchain Inc (NASDAQ:RIOT) Stocks are down (-84%) and (-81%) year-to-date (YTD). Block, Inc. (NYSE:SQ) The stock appears to have shed its exposure to crypto trading as it recovers from its lows.
FTX scandal contagion
The third largest crypto exchange in the world in 2021 was the FTX Exchange, which specializes in derivatives and leveraged products. FTX was launched in 2019 by Sam Bankman-Fried. FTX is short for futures exchange. FTX had a bank run on its FTT token that resulted in a $5 billion withdrawal on Nov. 6 amid allegations of fraud involving Alameda that sparked a runaway liquidity crisis.
It went from a $32 billion valuation to bankruptcy in a matter of days. Alameda Research was found to be a sister firm with ties to 150 firms in a Chapter 11 bankruptcy filing dated November 11, 2022 and over 1 million creditors.
Allegations of fraud, mismanagement and a mere lack of corporate controls swept the crypto world as the Financial Times reported that FTX has $9 billion in liabilities and just $900 million in marketable assets.
With a domino effect, this has triggered bankruptcies and speculation on bankruptcies across the board. From the implosion of Three Arrows Capital to crypto firms Voyager, Celsius and BlockFi all filing for Chapter 11 bankruptcy due to the liquidity crisis.
Headlines are made daily about other crypto firms facing liquidity issues stemming from the FTX fallout, prompting speculation about Coinbase’s involvement, which the firm denied. While Robinhood Markets (NASDAQ:HOOD) Claiming no exposure to FTX, Sam Bankman-Fried owns a 7.6% stake in Robinhood. Contagion fears continue to run through the industry and the shares of the companies associated with it.
The harder they fall
Coinbase released its third quarter 2022 results for the quarter ended September 2022. The company reported an earnings per share (EPS) loss of (-$2.43) versus (-$1.46) analyst consensus estimates, a fall of (-$0.96). Revenue declined YoY to $590.34 million (-55%), falling short of analyst consensus estimates of $641.88 million. Monthly transactional users (MTUs) decreased (-16.4%) year-on-year to 8.5 million. Trading volume fell (51%) to $159 billion.
CEO Brian Armstrong commented in his conference call, “We’ve gone through four crypto cycles at Coinbase in the last 10 years. And it’s kind of funny, I actually enjoyed the down cycles a little bit more. There’s a lot of scaling effort involved in upcycles, and many people are jumping into crypto for sometimes the wrong reasons. In the down markets you can focus on building and everyone is there who is a true believer and a true builder and this is no different. There’s a lot of innovation happening.”
Mild prognosis
Coinbase provided its full-year 2022 guidance, expecting average MTUs to be under 9 million and an average transaction per user of around $20. It grows its subscription and service revenue from $600 million to over $700 million. It remains cautiously optimistic that it will operate within the $500 million adjusted EBITDA loss limit.
For the 2023 financial year, the company expects ongoing pressure on transaction revenues. It will continue to manage expenses and reduce costs, and may evolve its disclosures of business metrics to better align with business performance, which may include changes to and deletions of certain metrics.
A falling meat cleaver
The saying “don’t catch falling knives” is an understatement as it refers to COIN stocks. Rather than a falling knife, the pattern and magnitude of the collapse from a $429.54 high resembles that of a falling meat cleaver as each rally is chopped at the knees back to lower lows or consecutive bear flags. The weekly Bollinger Bands were in a compression phase that appears to be expanding again as shares fell to a new all-time low of $40.15 on December 9, 2022 as investors participated in tax loss selling. The weekly stochastic continues to plummet, dropping to the 10-band. Pullback supports are at levels not seen before at $32.64, $25.42, $20.61, $15.26, $10.45 and $5.10.
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