How bad is the crash in the crypto market? Take a look at Coinbase

Among those who hesitate from billions of dollars lost in cryptocurrency crash, no company has taken a bigger beating than Coinbase. The nation’s largest and first listed crypto exchange, Coinbase, has seen its share price plummet 81% this year, and has recently announced plans to.

With Coinbase reporting a $ 430 million loss in the first quarter, some hedge funds are starting to short the stock, meaning Wall Street is betting that Coinbase’s value will fall further.

But all is not lost for the stock market, according to analysts, who see more bounce to the crypto bubble than the current crash suggests. Despite the recent battles, they predict that Coinbase will cope with this downturn in the crypto market and eventually thrive. This is because the company has learned how to survive such downturns, say analysts.

Coinbase, founded in 2012, established itself years before cryptocurrency mania or the current “cryptocurrency winter” hit the United States. It has now achieved a market value of $ 13.8 billion with around 5,000 employees and $ 256 billion in assets on the platform.

“Coinbase has been through some cryptocurrencies, and each time they have obviously survived,” said John Todaro, a cryptocurrency activist for Needham & Co. “The winter had to get worse for Coinbase to be in any real danger.”

Coinbase’s $ 6 billion in reserves boost his confidence. This money is “a pretty solid pillow” to help Coinbase get through turbulent times, Todaro said.

Profit based on number of transactions

Coinbase did not respond to a request for comment on how the crypto market has affected its business. CEO Brian Armstrong said during a earnings interview in May that Coinbase officials “tend to do our best work in a downturn.”

Nevertheless, one of the reasons why Coinbase is struggling now is because there are fewer people on the platform making transactions. Coinbase earns a majority of its revenue by charging a 1% fee on each crypto transaction, but company officials said in May that the volume of transactions has declined. The number of monthly users of Coinbase has fallen 19% since the end of last year, the company said.

The fall in transactions makes Coinbase’s $ 6 billion coffin even more important, said Devin Ryan, a stock analyst at JMP Securities.

“They’re one of the best capitalized companies,” Ryan told CBS MoneyWatch. “And although they have a business model today that is based on transactions, they build one of the most diversified businesses in the (crypto) industry.”

The decline in crypto is exacerbated by soaring inflation

Not only does Coinbase see fewer transactions, but cryptocurrencies have fallen to their lowest levels this year.

The price of bitcoin, ethereum and other major tokens began to fall this spring as rising inflation tightened its grip on the US economy. As the cost of daily commodities such as gas and groceries increased, investors began to withdraw their money from investments they considered risky, including cryptocurrencies. When investors sold out their digital assets, the price of crypto fell further.

Stablecoins lose their pins to the US dollar has also played a role in investors’ departure from crypto in recent months. Individuals who had become addicted to stack coins like luna and terraUSD to protect their money from the wild swings typical of many cryptocurrencies were surprised to see both of these coins fall below $ 1 in May – something that should never happen. The fall in prices of the two benchmark coins further weakened investors’ confidence in the crypto market.

Meanwhile, the price of bitcoin, which peaked at around $ 68,000 in November last year, has fallen 56% since the beginning of this year, trading at around $ 20,250 as of Wednesday. Ripple has fallen 61% to around 30 cents and ethereum is down almost 70% to $ 1,140.

Ryan believes that the recent price declines will not last forever, and that investors will return to crypto. When they do, they are likely to use Coinbase, according to Ryan.

“We expect them to gain even more market share after this, but there is no doubt that we are in a difficult moment right now in the market,” he said.

As the crypto market goes, so does Coinbase

Coinbase is a real-time case study of what happens to a crypto company when the price of bitcoin and tokens falls, analysts say. Coinbase’s future depends on stronger growth, and so does the future of other major crypto platforms such as FTX and Kraken, analysts said.

The crypto landscape is much wider and richer now than it was in April 2021 when Coinbase was listed on the stock exchange and the shares traded at almost $ 400 a piece. Competitors such as Binance and Crypto.com have caught the attention of investors, while cryptocurrencies and hacks have become more lucrativewhich leads to federal lawmakers pushing for more regulation around digital assets.

All that activity, analysts said, has created an even bigger divide between pro-crypto investors and skeptics. How quickly Coinbase rebounds depends on how many investors “think there is a great future for digital assets,” Ryan said.

“If you have a positive view of the future of the crypto-economy and you are optimistic about where it may come from, then it should be your same view of Coinbase,” he said.