Shares of cryptocurrency exchange Coinbase lost nearly a quarter of their value on Wednesday after reporting dismal results, as its chief executive rushed to allay what he said were bankruptcy fears. unnecessary.
Coinbase stock fell 23% after reporting a significant decline in revenue, which beat analysts’ expectations, as well as a sharp decline in trading volumes in its first quarter results on Tuesday.
The poor results as well as concern over a regulatory filing later in the day prompted general manager Brian Armstrong to status on twitter that Coinbase had “no risk of bankruptcy”.
His comment came after a new disclosure suggested customers could be liable for claims against the exchange, setting off alarm bells among Coinbase users.
According to the filing, the crypto that Coinbase holds in custody for users “could be subject to bankruptcy proceedings and these customers could be treated as our general unsecured creditors.” As a result, users may find the platform “riskier and less attractive,” which could hurt its financial health, according to the filing.
But Armstrong was quick to reassure users, apologizing for not communicating “proactively” when adding the new formulation.
2/ We have no risk of bankruptcy, but we have included a new risk factor based on an SEC requirement called SAB 121, which is a new disclosure requirement for public companies that hold crypto assets for third parties . https://t.co/lwmgb1kFtA
— Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022
“There is noise about a disclosure we made in our 10Q [regulatory filing] today about how we hold crypto assets,” Armstrong tweeted, adding that rather than risk bankruptcy, the exchange changed its terms to meet a regulatory requirement.
Wedbush analysts noted that Coinbase was “full of cash” and continued to invest “aggressively” during the recession.
In its first-quarter results, the company announced larger-than-Wall Street-expected losses — $430 million compared to analysts’ estimate of $47 million — and predicted that trading volumes and the number of users would continue to decline in the current quarter.
Coinbase shares have lost 67% of their value since the start of the year, with their price falling below $100 for the first time since the company went public in April last year. At the time of its IPO, Coinbase shares were worth $381.
The health of Coinbase’s business has long tracked trends in the broader crypto markets, benefiting from a boom in speculative trading by retail investors in the first half of last year. After its public market debut, the company’s earnings outpaced more established exchange operators, including CME Group and Intercontinental Exchange, in the 2021 bull market.
However, recent interest rate hikes have caused investors to flee riskier corners of the global financial markets, sparking a crypto bear market that has been dubbed the last “crypto winter.”
Bitcoin has fallen sharply recently, falling below $30,000 for the first time since July earlier this week, amid broader turmoil in cryptocurrency markets caused by the collapse of stablecoin Terra.
Coinbase also faces regulatory hurdles. In a call with analysts on Tuesday, Armstrong said the company halted services in India just days after its market launch due to “informal pressure” from the Reserve Bank of India. Armstrong has previously had run-ins with US regulators, who are currently circling the industry.
Last year, he accused the U.S. Securities and Exchange Commission of “sketchy behavior” after threatening to sue the company if it launched a particular lending product. Coinbase then shelved plans for the Lend product.
Despite the rout, Armstrong and other executives have repeatedly sought to reassure investors the downturn could be an opportunity for the company, allowing it to focus on diversifying its business, investing in innovation products and hire talent. The company recently launched a non-fungible token market and explored areas such as crypto derivatives.
Coinbase signed its shareholder letter with #wagmi, a popular hashtag among the crypto community for “we’re all going to make it happen.”