Will Coinbase be the next "drag" on the encryption market?

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In April 2021, the cryptocurrency exchange Coinbase Global was successfully listed on Nasdaq. Soon after, the company's valuation soared to the $100 billion range. In the words of Leeor Shimron, an analyst at FundStrat Global Advisors, "Coinbase's listing is groundbreaking. Yes, it can even be regarded as a watershed moment in the encryption industry.”

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

However, in the past 6 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 price target from $70 to $45.

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

For the recent continuous plunge of Coinbase's stock price, a former Coinbase employee thinks it is unusual, because usually when the price of cryptocurrency falls, the trading volume of the exchange tends to rise sharply, and Coinbase's performance in recent quarters has violated this. law. The reason may not be as simple as being affected by the encryption winter.

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

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

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Coinbase's sluggish performance in the stock market may keep crypto companies from attempting IPOs

On July 15, Dan Dolev, an equity analyst at Mizuho, ​​said in a note to clients that Coinbase’s trading volume in July is expected to be about $1.2 billion, up from a high of nearly $7 billion in November 2021. Its market share has fallen to 2.9 percent from 5.3 percent in the first quarter. According to Dan Dolev, Coinbase ranked 14th in average trading volume in July, compared to 4th in November last year. Dan Dolev has a Neutral rating on Coinbase stock and lowered his price target to $42 from $45.

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

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Coinbase Layoffs Send Ripples in Crypto Sector

Affected by poor operating conditions and the "bear market" in the global encryption market, Coinbase took the lead in making the decision to slow down the pace of global recruitment. According to Emilie Choi, the company's president and chief operating officer, it was originally planned to triple the total number of employees this year, but considering the current market conditions, the company believes that it is prudent to slow down the pace of recruitment and re-evaluate personnel needs according to the company's top priority business goals. cite, so that goal has been shelved. Not only that, but the company has streamlined some overseas teams and recalled some overseas business leaders to its U.S. offices.

As one of the companies with the largest demand for employees in the encryption field, Coinbase's move to suspend recruitment has been followed by many peers, and those encryption companies have also suspended their recruitment plans on the grounds of the upcoming encryption 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, expecting a win-win result. Before the bear market, Coinbase invested heavily. Taking the Indian market as an example, Coinbase invested US$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 US$100,000 to US$1 million, so the impact on overseas encryption ecosystems is not very serious.

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Leading companies are sluggish, will the crypto winter continue for at least another 12 months?

Despite the sluggish industry, the computing power of Bitcoin has not dropped significantly, the number of transactions per second per block has also remained high, and the total number of Bitcoin addresses has also exceeded the 1 billion mark. However, in terms of price, Bitcoin, Ethereum However, the performance of Fangfang and other cryptocurrencies is not 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 Coinbase's board of directors until 2021, believes that the decline in the cryptocurrency market will continue throughout 2022, and then return to a "basically flat" state in 2023, while the improvement in the macro market may take until the second half of 2023. Only then can we first see the clues.

Frankly speaking, the bear market in 2022 is very different from the post-Covid-19 market crash in 2020. It may be caused by the Fed's continued interest rate hikes, which means that investors may face continuous losses until the US dollar interest rate stabilizes. Tom Loverro suggested that encryption 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, don't waver or give up easily, once the market recovers, cryptocurrencies will be bigger than ever.”

On the other hand, Coinbase is actually preparing for a long runway. Although it has laid off many employees, these departures have been well compensated. Not only that, Coinbase 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? Maybe only time will give us the answer.