Coinbase likens poor performance to cyclical nature of crypto

Leading US-based crypto exchange Coinbase says its performance should be evaluated like crypto — in other words, as part of a price cycle — after it posted a nearly $1.1 billion Q2 net loss.

In a letter to shareholders this week, the company outlined how it was down $1.094 billion — an almost 170% decrease from the same period last year.

These losses included $446 million in total non-cash impairment charges, according to the letter. Without these charges, Coinbase says its net loss would stand at $647 million.

However, the firm says that just as crypto is cyclical, it makes sense to judge its performance and the work it’s been doing against a backdrop of peaks and troughs over the past two years.

“We have observed four major crypto asset price cycles since 2010,” says the letter.

“These cycles are evident by viewing Bitcoin prices over time on a logarithmic scale (prior peak-to-trough declines have been 84%, 85%, and 94% historically, although these prior declines did not coincide with a broader macro downturn,” (our emphasis).

It adds, “We have long advocated that the best way to evaluate Coinbase through these early years of this nascent industry, is through the same lens we evaluate crypto — over a price cycle.”

The letter then goes on to compare the state of the company at present to figures from Q2 2020.

Specifically, it highlights a tripling of the number of verified users from 36 million to 103 million, outlines the growth in quarterly trading volume from $28 billion to $217 billion, and says that assets on platform grew from $26 billion to $96 billion.

The letter also moves to reassure investors, saying: “Down markets are not as bad as they may seem. Yes, it can feel scary and near-term financials can be heavily impacted … We have conviction that if we continue to focus on building the right products and services, we will emerge stronger than before.”

This may well be the case but the report still makes for alarming reading for Coinbase shareholders.

According to the latest results, monthly transacting users are also down 2% on Q1, trading volume dipped 30% to $217 billion, and assets on platform plummeted from $256 billion last quarter to just $96 billion.

Coinbase has already weathered choppy waters this year after it was forced to lay off nearly 20% of its staff when a marketwide downturn saw crypto prices in the gutter.

Coinbase says bankrupt crypto companies should have seen it coming

Coinbase claims the issues that have virtually destroyed a number of crypto companies, including Celcius, Voyager Digital, and Three Arrows Capital, were “foreseeable” and says its robust risk-management program meant things weren’t much worse.

And a big part of this program was steering clear of too much involvement with the aforementioned companies.

According to the shareholders’ letter, “Solvency concerns surrounding entities like Celsius, Three Arrows Capital, Voyager, and other similar counterparties were a reflection of insufficient risk controls, and reports of additional struggling firms are fast becoming stories of bankruptcy, restructuring, and failure,” (our emphasis).

“Notably, the issues here were foreseeable and actually credit-specific rather than crypto-specific in nature. Many of these firms were overleveraged with short-term liabilities mismatched against longer duration illiquid assets.”

Luckily for Coinbase shareholders, the company says it had no financing exposure to these companies and it hasn’t bet big on these types of risky lending practices.

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