It’s not good to be a crypto investor or a cryptocurrency exchange in 2022.
The digital asset industry is going through one of its worst times since the emergence of bitcoin in January 2009.
The market fell sharply by $2 trillion from its all-time high of $3 trillion in November, a data firm says CoinGecko. Bitcoin (BTC), the most popular cryptocurrency, has lost over 69% of its value since hitting a record high of $69,044.77 on November 10, 2021.
At the same time, hacks have reached an all-time high, according to blockchain security firm Chainalysis, which is helping to undermine the mass adoption of cryptocurrencies.
Huge net loss
Added to this are regulatory uncertainties in the United States where regulators still prefer to legislate more by sanctioning than by establishing a clear framework.
Coinbase (PIECE OF MONEY) one of the most important players in the sector, has just confirmed all these misfortunes which are not about to disappear.
The platform posted disappointing results in the third quarter. Quarterly revenue fell 53.4% year on year to $576 million, according to a statement. What is striking is to see that revenues only decrease each quarter compared to the previous quarter. In Q2, Coinbase generated $803 million in revenue, which was already down 31% from $1.2 billion in Q1 revenue.
The firm also confirmed another trend: it still hasn’t made any money since January. In the third quarter, Coinbase posted a net loss of $545 million, halving from the second quarter. This reduction in loss is due to the fact that the company managed to drastically reduce its costs by 38% over three months.
In June, the company cut 18% of jobs, or 1,000 people who were made redundant.
In the third quarter of 2021, the company was profitable, posting net income of $406 million.
“The third quarter was another tough quarter,” the company said. A variety of macroeconomic factors – consumer prices rose at the fastest pace in 40 years and the federal funds rate hit a 14-year high – and geopolitical factors – including the Russian-Ukrainian war – have weighed heavily on financial markets and crypto markets all over the world. 2022.”
“While crypto markets have not always been correlated to macro conditions, we are finding that broader risk appetite is correlated with crypto price movements this year.”
The firm continued, “In addition to lower average crypto prices, they remained relatively subdued in the third quarter. As a result, crypto assets volatility – a key driver of our retail business trading volume — reached its lowest point in the third quarter since 2020.”
Coinbase’s user base has been in steep decline since January. The company ended 2021 on a high, with 11.2 million monthly transacting users (MTU) in the fourth quarter. The number fell to 9.2 million MTU in the first quarter of 2022, then to 9 million MTU in the second quarter before falling to 8.5 million MTU in the third quarter ended September 30. For the current quarter, Coinbase says it will be “slightly below” 9 million MTU.
Retail investors have not left
The decrease in the number of users is reflected in revenues. Revenue from transactions made by retail investors fell to $346.1 million from $1.02 billion in the third quarter of 2021. Transaction volumes were $159 million in the third quarter from 327 million to the same period a year earlier.
Coinbase said it expects “lower trading volume and a similar number of MTUs compared to our third quarter results” in the fourth quarter.
Coinbase shares have fallen 77% since January.
While Goldman Sachs analysts welcome the group’s desire to continue to reduce costs, they remain concerned about the drop in volumes traded and the firm’s pessimism.
“We remain cautious as the company has repeatedly reiterated its expectation to run the business with negative EBITDA in the near term absent a major change in the market environment, which we believe will not should not result in improved sentiment given the continued decline in crypto trading volumes in Q4,” Goldman Sachs said in a research note.
“In addition, COIN management discussed ongoing regulatory uncertainty in the crypto ecosystem, which is limiting the company’s ability to roll out new products and which the company believes is driving retail transaction volume. to offshore trading platforms.”
EBITDA refers to earnings before interest, taxes, depreciation and amortization, which helps investors gauge a company’s financial health.
The platform has indeed stated that it will “operate within the $500 million Adjusted EBITDA loss safety barrier that we have previously communicated” if market conditions do not worsen.
But Coinbase has identified one factor that could prove very positive in the future.
Retail investors have not left. If they’re trading less, they’re keeping their digital assets on the platform: “We take this as a sign that on average our clients are maintaining long-term belief in crypto and we think they’re likely to become more active when market conditions improve.