Coinbase stockholders are bracing for more misery after Goldman Sachs downgraded shares in the crypto exchange to a sell rating. Since its listing, the stock has plummeted by over 85% to just above $50 per share.
Goldman analyst William Nance told Bloomberg that the “continued downdraft in crypto prices” may be the reason for the downward pressure on Coinbase stock. Its price fell a further 10% after the downgrade.
A particularly cold crypto winter has sent the prices of digital assets tumbling. What was a $3 trillion market no longer even touches the $1 trillion mark. According to Nance, a broader drop in activity across the crypto sphere could explain Coinbase’s spiraling share price and he suggests the exchange should trim some fat if it wants to stay profitable.
“We believe Coinbase will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up,” said Nance (via Bloomberg).
“Coinbase faces a difficult choice between shareholder dilution and significant reductions in effective employee compensation, which could impact talent retention,” continued Nance. He went on to predict a dim outlook for the US’ largest crypto exchange suggesting a 60% drop in profits in the year ahead.
Goldman Sachs foresees further profit losses for Coinbase
As noted by Bloomberg, Coinbase’s unsecured bonds were among the biggest decliners in the US this week as pressure mounts from competing exchanges. Binance’s US arm said it would scrap its fees for Bitcoin trading and promised fee-less trading for other coins was on the horizon.
In an effort to keep its head above water, Coinbase has already been actively cutting costs. Last month it scaled back its optimistic expansion plans leaving new hires in the lurch and laying off more than 1,000 existing staff.
Coinbase said it plans to shed 18% of its headcount to regain control of its operating expenses. According to Bloomberg, Coinbase’s overheads reached $1.7 billion in the first quarter of 2022.
Nevertheless, amid the recent scandal over new hires that had their job offers rescinded and a lackluster response to its NFT platform, members of Coinbase’s exec team have been able to offload their stock options.
Other crypto-exposed stocks are tumbling too
The tech firm’s exec team appeared to dispute at what point the plummeting price of Bitcoin would enact a margin call on the company’s debts. While CFO Phong Le suggested that margin call territory was a BTC price of $21,000, Saylor corrected the figure via Twitter claiming that Bitcoin would need to fall to $3,562 before MicroStrategy was in trouble.
Other Bitcoin-heavy firms have observed a falling share price. Electric vehicle maker Tesla is down 90% from its all-time high and Canadian crypto broker Galaxy Digital Holdings is also down about 86% from its 2021 peak.
Elsewhere, publicly-traded mining firm Argo Blockchain maintains its downward trajectory. The stock is almost 90% down from its all-time high of $282 to $33.82. And back in the world of retail trading, Robinhood stock has lost half of its value.
FTX chief Sam Bankman-Fried recently said he has a 7.6% stake in the trading app. However, in a statement to CNN he claimed “there are no active M&A conversations with Robinhood,” suggesting no interest in a takeover of the fintech firm.