Coinbase (COIN): terrible year

Coinbase, the company founded now a decade ago by Brian Armstrong and Fred Ehrsam in San Francisco, has been listed on Wall Street since April 2021 under the name COIN.

The stock represents the largest exchange in the United States of America and one of the largest in the world by market capitalization.

Coinbase is part of a close circle of companies from the crypto world that are listed on the exchange. The others are Block Inc. (formerly Square) and cryptocurrency mining companies Core Scientific and Riot Blockchain.

Bad news, it is known, never comes alone, and taking away the critical market issues and scandals Terra Luna, Three Arrows Capital and FTX, Coinbase has not shined in the market for various reasons.

The exchange has been subpoenaed by the US Supreme Court in addition to already having two pending lawsuits that are now turning to their final stages.

This and the downgrade of some investment banks caused the stock to capitulate on the exchange, touching new lows.

Coinbase (COIN) stock market projections

COIN has fallen 87% since the beginning of the year recording a new low since its inception in April last year.

On 21 December 2021 a share traded for $268.15 whereas as we are writing it is trading for $33 each.

Bank of America downgraded the exchange-related stock (Coinbase Global) from Buy to Neutral.

The choice according to analysts at the historic US investment bank in a note cited downgrade due to risks in the short/medium term.

“We are confident that COIN will not be another FTX (only $15M in deposits on the FTX platform according to a Coinbase blog post and $5B in cash on hand as of Sept. 30), but that doesn’t make them immune to the wider spillovers within the cryptocurrency ecosystem.”

the analysts added.

Bank of America recognized the drastic decline in user confidence in the crypto world, the lack of clear regulation, and the danger of contagion from FTX still hovering in the sector as the main causes of the meltdown.

The US bank did not limit itself to the downgrade but also revised its price targets for the stock.

Coinbase thus sees its price target move from $77 per share to $50 per share.

On the other side of the world, the Rising Sun has not been outdone, and the stock has also created discontent among Japanese analysts.

Mizuho is among the banks critical of COIN but maintained a Neutral rating despite the fact that daily volumes in the sector are falling to the point of being below annual averages by almost 40% hinting that:

“Consumers are exhausted and uninterested in the asset class. After several months of stock losses against the 30 largest cryptocurrency exchanges, the FTX debacle has offered little respite for COIN, which has posted modest equity gains over the past week. But should investors rejoice? We don’t think so, as other exchanges like Binance have gained significantly more shares.”

That was the comment in an official document from the Japanese institution.

COIN’s losses have been large and spread throughout the year, in the last month for example 20% has been left in the field, 33% since June and as I wrote above 87% if we broaden the spectrum to the whole year.

The stock is going down but the users are going up, as Finbold reported, the exchange recorded 19 million more users just in the time frame from 31 December last year to 30 September this year.

As a percentage, Coinbase has increased its investors by 21.35% precisely because of a few key factors.

An aggressive and modern marketing plan, targeted strategy by investor type, and special features such as being able to make donations in cryptocurrency are behind the increase in users.

Coinbase is closely tied to the stablecoin USDC (USD Coin), which it partly owns through Circle Internet Financial (CIF), and this has netted the exchange platform as much as 100 million in interest income.

Circle’s move to transform itself into a Public Company could be an indication that it wants to change its business model and perforce its relationship with Coinbase as well.

On the bond side, Morningstar notes that these are currently trading for $0.52 highlighting that should the company meet all the bonds there would be a guaranteed upside.

Despite this enticing consideration, those who hold bonds in Coinbase’s portfolio often prefer to liquidate them in the face of the company’s risk of bankruptcy.

Fear from contagion from FTX still has a strong grip on investors and this inevitably affects their choices.

Cathie Wood, Chief Investment Officer and Portfolio Manager at Ark Invest, also in light of some of Coinbase’s moves, has purchased 297,000 Coinbase securities worth nearly US$12 million.

Ark Invest holds 6,139,480 shares of Coinbase in total and the value is US$246.7 million.

To restore the stock’s fortunes on the stock exchange, the US cryptocurrency company, has ceased hiring since June this year and in July laid off 1,100 employees corresponding to 18% of the workforce.

Brian Armstrong, co-founder of Coinbase told employees that the decisions made were due to the turbulent economic conditions in the market and the likely recession just around the corner.

In a Twitter post, the entrepreneur and investor posted images depicting innovations that many had dismissively snubbed such as the telephone, the car or elevators, accompanying the images with the tweet:

“For every technological game-changer, there are millions of doubters. Eliminate the noise and keep building.”

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