Will Coinbase be the next to "drag down" the crypto market?

In April 2021, the cryptocurrency exchange Coinbase Global was successfully listed on the Nasdaq. Soon after, the company's valuation soared to the $100 billion range. In the words of FundStrat Global Advisors analyst Leeor Shimron, "Coinbase's listing was groundbreaking and could even be considered a watershed in the crypto industry."

Coinbase has always been a "barometer" for global crypto entities and has also received strong support from the well-known venture capital firm Andreessen Horowitz ( a16z ). Currently, a16z holds approximately 25% of Coinbase's Class A shares and 14% of Class B shares.

However, in the past six months, Coinbase's stock price has fallen like a free fall, from $381 in November 2021 to $48 on July 5, 2022, and its market value has plummeted to the $10 billion range. Currently, Goldman Sachs has downgraded the company's rating from "neutral" to "sell" and lowered its target price from $70 to $45.

Looking back at Coinbase's business operations over the past six months, it is not difficult to find that its total trading volume in the first quarter of 2022 was US$309 billion, a staggering 44% decline from US$547 billion in the fourth quarter of 2021; not only that, its retail trading volume also fell by more than 50%. In comparison, the performance of the other two exchanges, FTX and Binance, is much better.

A former Coinbase employee believes that the recent continuous plunge in Coinbase's stock price is unusual because usually when the price of cryptocurrencies falls, the trading volume of the exchange tends to increase significantly, but Coinbase's performance in recent quarters has violated this rule. The reason is probably not just the impact of the crypto winter.

As a cryptocurrency exchange listed on Nasdaq, Coinbase has fallen nearly 10 times in more than half a year. This has not only caused market panic, but also triggered thinking about some key issues around the world:

1. What impact will this shrinkage have on the global crypto market?

2. Is an IPO the right direction for unregulated crypto entities?

Coinbase's poor stock market performance may lead to crypto companies not trying IPOs

On July 15, Mizuho stock analyst Dan Dolev said in a report provided to clients that Coinbase's trading volume in July is expected to be about $1.2 billion, down nearly 83% from a high of nearly $7 billion in November 2021, and its market share has fallen from 5.3% in the first quarter to 2.9%. Dan Dolev said that Coinbase's average trading volume in July ranked 14th, compared with 4th in November last year. Dan Dolev gave Coinbase stock a neutral rating and lowered the target price from $45 to $42.

In fact, Coinbase could have chosen ICO (Initial Coin Offering) last year, with a valuation of $100 billion, but the company wanted to raise funds from institutional investors, so it finally chose IPO. However, many crypto companies know that once they choose to go public, they must operate in a structured manner, which also means that the transparency of the company's operations will become greater and greater trust is required.

On the other hand, Coinbase's recent free fall in the market has discouraged people who originally wanted to invest in crypto companies. To make matters worse, the SEC has not allowed Coinbase to launch multiple products that it has been running for several months. For all these reasons, the possibility of crypto companies going public in today's environment is almost slim, at least within a year.

Coinbase layoffs send ripples through crypto industry

Affected by poor operating conditions and the global crypto market "bear market", Coinbase took the lead in making the decision to slow down global recruitment. According to Emilie Choi, the company's president and chief operating officer, the original plan was to triple the total number of employees this year, but considering the current market situation, the company believes that it is prudent to slow down the pace of recruitment and re-evaluate personnel needs based on the company's top business goals, so this goal has been shelved. Not only that, the company has also streamlined some overseas teams and recalled some overseas business leaders back to the US office.

As one of the companies with the greatest demand for employees in the crypto field, Coinbase's move to suspend recruitment has been followed by many of its peers, and those crypto companies have also suspended their recruitment plans citing the upcoming crypto winter.

It is worth mentioning that Coinbase not only suspended its recruitment plan, but also slowed down its overseas investment. In fact, Coinbase has been focusing on investing in various fields of the cryptocurrency ecosystem, especially investing in some overseas startups that compete with its products, looking forward to a win-win result. Before the bear market, Coinbase's investment was very strong. Taking the Indian market as an example, Coinbase invested $150 million in more than a dozen companies in India, including ZebPay, CoinDCX, CoinSwitch Kuber, Vauld, etc., and also acquired Agara. However, since Coinbase usually participates in seed round financing and is not the lead investor, the investment scale generally ranges from $100,000 to $1 million, so the impact on the overseas crypto ecosystem is not very serious.

Finally, due to industry regulation issues and pressure from overseas regulators, Coinbase’s UPI payment business in some countries was suspended, which disrupted their plans to expand overseas markets. Therefore, how to operate normally in a regulated environment is still a science for many crypto companies. In addition, it is also crucial to pay attention to customer data, customer sentiment and customer experience, so that they can gain the trust of investors and users.

With leading companies in decline, will the crypto winter continue for at least another 12 months?

Despite the sluggish industry, Bitcoin's computing power has not dropped significantly, the number of transactions per second per block has remained high, and the total number of Bitcoin addresses has exceeded the 1 billion mark. However, at the price level, the performance of Bitcoin, Ethereum and other cryptocurrencies has been less than satisfactory, and the downward trend has lasted for nearly 9 months. Many industry insiders believe that this may be the longest cryptocurrency winter since 2018.

Tom Loverro, who served on the Coinbase board until 2021, believes that the downward trend in the cryptocurrency market will continue throughout 2022 before returning to a "roughly flat" state in 2023, while improvements in the macro market may not begin to show signs until the second half of 2023.

Frankly speaking, the bear market in 2022 is very different from the market crash after Covid-19 in 2020. The latter was just a black swan event, and investors saw the market rebound, while the current one is a cold winter, which is most likely caused by the Fed's continued interest rate hikes, which means that investors may face continued losses before the US dollar interest rate stabilizes. Tom Loverro suggested that crypto companies need to reserve enough cash to face the market downturn in the next 30-36 months. " More importantly, have enough confidence to survive the winter and don't waver or give up easily. Once the market recovers, cryptocurrencies will be bigger than ever before. "

On the other hand, Coinbase is actually ready for a long runway. Although it has fired many employees, these departing employees have received generous compensation. Not only that, Coinbase has also "low-key" launched international market expansion to promote growth and registered in Italy, Spain, France and the Netherlands. So, can other crypto companies survive this crypto winter? Perhaps only time can give us the answer.