Coinbase (NASDAQ:COIN), the cryptocurrency exchange platform that is facing a class action lawsuit over its alleged listing of unregulated securities, on Wednesday fell 43% from its peak since it went public on the Nasdaq stock exchange nearly a year ago.
The stock is down 21% from the reference price of $250 set by the Nasdaq when it debuted in April 2021. The IPO valued Coinbase at $49.8 billion and marked the first major cryptocurrency company to go public on a US stock exchange.
However, Coinbase’s stock price has since swung to as low as $160 earlier this month amid the volatile cryptocurrency market, uncertainties over regulations on digital currencies and a massive class action lawsuit over its alleged sale of securities not registered with the US Securities and Exchange Commission.
The lawsuit alleges that Coinbase, since October 2019, has been letting customers trade 79 cryptocurrencies without disclosing that they are in fact securities.
Coinbase, established in 2012, allows users to trade cryptocurrencies like Bitcoin and Ether in exchange for a transaction fee. Last year, the platform’s monthly transacting users quadrupled from 2020 to 11.4 million.
The company raked in $7.36 billion in revenue in 2021, up 545% from $1.14 billion in 2020, while net income soared elevenfold to $3.62 billion from $322 million.
Coinbase attributed its strong performance to the booming crypto market. The market capitalization of cryptocurrencies over 2021 surged threefold, closing at $2.3 trillion, but down from a peak of $3.1 trillion in November 2021. Bitcoin’s market cap by 2021-end hit almost $1.3 trillion.
As a cryptocurrency exchange, Coinbase’s stock performance is tied to the price of Bitcoin and other major digital currencies, which means that if crypto markets collapse, it would likely hammer Coinbase’s stock price.
Both Coinbase and Bitcoin reached their peaks in November 2021. Bitcoin traded near $70,000 at the time but has since fallen to around $45,000 in recent months as traditional investors appear to shun digital assets.
Although Coinbase as a listed exchange platform is regulated by US laws, cryptocurrencies still have a long way to go in terms of regulations.
In the US, the Biden administration recently issued an executive order directing the government to come up with a plan to regulate cryptos, but in Europe, the market is headed for tighter regulations as lawmakers are set to introduce new laws to curb suspicious transactions, among other reasons.
In a blog post on Monday, Coinbase’s Chief Legal Officer Paul Grewal said that if adopted, the EU’s planned crypto laws would "stifle innovation”.
Despite the crypto downturn this year and potentially tighter regulations, Coinbase remains bullish on digital assets, hinting at plans to launch its new marketplace for NFT or non-fungible tokens “soon”.
Coinbase NFT will allow users to buy, sell and check out NFTs through a peer-to-peer marketplace.
“What we liked right now and we’re observing the market is that NFT volume and price appear less correlated with other crypto assets,” Coinbase CFO Alesia Haas told analysts during the company's earnings call last month.
The company’s NFT plans could usher in a new revenue stream for Coinbase amid the volatility in cryptocurrencies.
Needham equity research analyst John Todaro expects Coinbase’s NFT ambitions would add an additional $1.26 billion in revenue for the company.
Cryptocurrency is having a material impact on traditional finance, stocks, and markets more than ever. It is arguably no longer an isolated ecosystem, divorced from anything other than indeterminable mania and depressions.
Supporting this supposition are the developments in the crypto space just this year; several crypto-backed ETFs became tradable in North America, Bitcoin appeared on the balance sheet of several Fortune 500 companies, and crypto-exchanges have achieved public listings. Speaking of the devil, the Nasdaq listed Coinbase Global Inc (NASDAQ: COIN) has reported its earnings today, comfortably beating its earnings expectations.
Fittingly, I plan to mark the occasion by crafting one of my periodical recaps of the crypto space.
The largest crypto exchange in the US, Coinbase, has reported Q2 earnings above expectations (total revenue of US$2.2 billion vs US$1.85 billion expected). Coinbase’s revenue growth is impressive considering that since the Company’s last earnings report, Bitcoin and its ilk have taken a nosedive in price.
Interestingly, Coinbase was able to increase its monthly user base and the value of processed transactions. All the while, the value of the crypto assets that were being traded declined by approximately 20%. In reward, Coinbase stock climbed 0.82% in afterhours trading, after it released its earnings report (however, the stock dropped 3.85% over Tuesday trading).
Further proving my point of Cryptos infiltration of mainstream finance, Coinbase reported that more than 9,000 financial institutions are included in their client base.
AMC has announced, alongside its earnings report, that it will begin accepting Bitcoin by the end of the year. I suspect the announcement was for two important reasons. The first, to help distract from the bad earnings report. Admittedly, the theatre lost less than expected, but the report was still less than desirable (US$0.71 vs US$0.94 expected loss per share). The second reason is to appeal to its meme investor base (like GameStop’s foray into NFTs). However, unlike GameStop’s foray into NFTs, AMC move into Bitcoin is far more practical and has the potential to pay off in the long term (predictions of Bitcoin reaching 100K are rearing their heads again). As of writing, Bitcoin is comfortably above 45K, after spending the beginning of August sub-40K.
The amendment sought to clarify language regarding who would have to abide by the new reporting requirements.
As it stands, Crypto advocates believe the tax rules are too broad and would lead to some entities being unable to comply because they are not privy to the information that is required to be reported. Ultimately, the US cryptocurrency space will be profoundly negatively impacted. This is an opinion shared by Coinbase CEO Brian Armstrong and Kraken CEO Jesse Powell, who believe cryptocurrency firms are likely to shift overseas in response.
Approximately US$600 million worth of Crypto has been hijacked from the Defi platform, Poly Network. The hackers siphoned off Ethereum, Shiba Inu, Wrapped Bitcoin and USD coin, among others.
While the coins are likely irretrievable, some measures can be taken to ensure that the hackers don't personally profit from the attack. Poly has called on the miners to blacklist funds coming from the hacker's address. I'm unsure if such an action would set a precedent. At any rate, decentralised projects have been known to roll back transactions made during hacks. In this instance, the founders of Tether, a decentralised coin, has already stepped in and frozen US$33 million worth of coins associated with the hacker's addresses.
While media attention has largely shifted to stories concerning record setting stock markets and volatile ‘meme stocks’ (a term now as meaningless as ‘hipster’ and ‘Karen'), the Crypto market has settled into its own subdued rhythm.
The Crypto market is still thriving, but without the media attention that it enjoyed a couple of months ago. Admittedly, the price of many top digital assets practically halved in value from their peaks a couple of months ago. Although taken in the grand scheme of things, their respective present values are basically unchanged from where they were before Elon Musk lent his influence to Bitcoin and Dogecoin and kicked off the crypto bull run.
As of July 2021, the top crypto assets have achieved a more ‘natural’ price, as evidenced by relative stability in their respective prices.
Stability entered the Crypto market about a month ago. Consequently, opportunities when trading digital assets has contracted slightly. Take, for example the past seven days, Bitcoin has moved less than 4.4% in price, while Litecoin has moved 5.2%.
With this being so, the crypto space is vast, and many projects can still experience the volatility that traders are interested in taking advantage of.
Let’s explore some of the more volatile crypto assets of the past week. Coincidently, at the time of writing, more examples cropped up. Perhaps this is a sign of an uptick in volatility.
Dogecoin is still in a precarious position. The fanfare it generated earlier in the year hasn’t exactly dissipated, but its aura of excitement has definitely dimmed. Still, Dogecoins trade at US$0.20 per coin at the time of writing, which is at a price in an order of magnitude larger than where it was when, seven months ago, the calendar ticked over into 2021.
In the past seven days, Dogecoin has moved -15% in price.
I hadn’t originally intended for this Ethereum to be included in this article, as it was moving sub-10% in the week. However, volatility has picked up recently. In the past seven days, Ethereum has moved -16.5%. Ethereum is currently trading at ~US$1,950.
Internet Computer, down by 15.1%
Shiba Inu, down by 18.4%
Compound, down by 19.8%
Litecoin, while being one of the most successful original altcoins, has generally been overlooked by crypto investors over the past couple of years. However, in 2017, Litecoin was on top of the world for many reasons. For one, it enjoyed a comfortable position within the list of the top ten cryptocurrencies. For another, the coin’s founder, Charlie Lee, was one of the most popular crypto personalities on Twitter (NYSE: TWTR), able to move markets with a single tweet.
At its 2017 height, Litecoin was trading at US$360 each, a record held until May 2021, when it topped out at US$413. Notably, Litecoin’s new fresh high was not that much more than its 2017 high. This is notable if you compare it to other coins that ballooned far beyond their respective 2017 heights. Take Bitcoin, Ethereum, and Doge, for example; the worst performing of these three was Ethereum, yet still clocked in a fresh 2021 record 169% above its 2017 high.
Litecoin is currently floating just outside the list of the top ten crypto projects, at number fourteen. While comfortable in the top twenty, it is frequently jostling for position in the capitalisation hierarchy with the assets on either side of it, Chainlink and Solana.
I do not think it will re-enter the top ten list. Although, I do appreciate several characteristics of the coin; It has a low-ish circulating supply, it has been around for a decade, and the Litecoin Foundation has initiated some exciting projects (e.g. Litecoin/Visa cards that easily transfers Litecoin to cash at a point of sale)
However, its value proposition is a little less sexy than other projects. As such, Litecoin doesn’t generate the same media or public interest as its compatriots.
Barring the coin’s attachment to Elon Musk, Tesla (NASDAQ: TSLA), or another meme, some other events will have to take place for Litecoin to re-enter the top ten. But, despite that, Litecoin should remain solidly in the top twenty.
Before the end of the year, investors will re-learn that blockchain networks are not suitable to displace every technology. In this respect, I think it is safe to say that the terribly named Internet Computer will fade into oblivion. Its use case is as silly as VeChain’s and BitDegree’s.
I suspect Ethereum-like networks will be the next big thing in the crypto space. Ethereum network fees are excessive and several alternatives to the sluggish-legacy network have been growing in popularity. I think this trend will continue. As such, I expect Solana to move up the hierarchy and Cardano to strengthen its position against Dogecoin and Ripple.
Gemini, the US-based crypto exchange, surveyed 3000 US-based investors. The result gives a snapshot of the general sentiment held toward crypto assets. A few illuminating facts are contained in the 16-page report. Perhaps the most exciting facet relates to how the demographic of crypto holders might radically change in the next wave of adoption.
Dogecoin's run up to US$0.40 last Friday, eclipsed awareness of the record prices achieved across the Crypto landscape. For instance, Bitcoin hit ~US$63K while Ethereum hit ~US$2.5K. Unluckily, these two coins did not have the same run-up to their new respective milestones that Dogecoin had.
The price of Dogecoin has held firmly over the weekend and into the new week, not venturing far outside the 30-cent range. Bitcoin and Ethereum, like much of the other top ten crypto projects, started tracking down by Saturday and kept that trend for multiple days.
A reversal of fortune has occurred recently. Most of the projects are now back in the green, for the past 24 hours at least, other than Polkadot and Litecoin.
The largest Crypto exchange in the US, Coinbase, is preparing to join the Nasdaq this week. Coinbase is the first exchange to go public and the listing can be considered another big step toward the mainstream adoption of cryptocurrency. The listing day is Wednesday 14, and the Company could not have picked a better time. That is to say, Crypto prices are currently performing exquisitely.
The estimated valuation of Coinbase is as high as US$100 billion. A valuation this high would put the exchange on equal footing with Facebook when it listed back in 2012. Interestingly, Coinbase could catch up to Facebook’s current valuation of US$900 billion. This would be possible if the price of Bitcoin and Co. increases at the same miraculous rate experienced in 2013 and 2017.
It appears that a major market force in the world of cryptocurrency are the tweets of billionaire influencers. Musk, Dorsey, and Cuban all have chimed in with positive tweets singing the praises of Bitcoin or Ethereum.
Cardano, the sixth largest crypto asset in terms of market cap, has increased in price by ~3,500% in the past year. But, is there a billionaire backer tweeting their support of the digital asset?
Today was a legendary milestone for Bitcoin, the most comprehensive used cryptocurrency as it crossed the 50,000 marks as it continues to attract retail and institutional investors worldwide.
Bitcoin's meteoric rise would constitute an understatement. If we consider Tesla for a second, traditionalists would call the stock "overvalued" or "expensive" at just over $780 billion market cap, where Facebook, which is slightly smaller by market cap, is generating a profit multitudes higher than Tesla currently is.
Tesla's value comes from investors believing they will sell more cars in the future. However, with Bitcoin? Its value comes from investors thinking it's going to be worth something more in the future – a self-fulfilling prophecy if you will.
Who knows. Is it expensive? Not quite sure. However, if you invested at the same time last year, you would have been purchasing the cryptocurrency near an all-time high, around $19,500 per coin. If you have the kahunas to hold one single coin till now, you would have returned 390%. Not bad for something that has no intrinsic value.
This rise has been fueled by the recent institutional interest in the coin.
Antoni Trenchev, managing partner and co-founder of Nexo in London, a large crypto lender, stated that "Whether it's Musk, Mastercard or Morgan Stanley, the mood, music and momentum is impossible to ignore."
Antoni may be onto something. The interest in cryptocurrencies is inducing many retail (and possibly institutional) investors to FOMO (Fear Of Missing Out) trade into the cryptocurrency, pushing its price further higher. However, this comes at a warning from the Financial Conduct Authority of the U.K., stating that "if consumers invest in these types of products, they should be prepared to lose all their money."
Earlier this month, we talked about GameStop and its meteoric rise to and downfall. I compared it to the Tulip Mania in Holland back in the 17th Century, and stated that it wasn't quite like the Tulip Mania. With Bitcoin, the comparison is a little bit more appropriate.
With GameStop, even though they were valued at some $25 billion ridiculous valuation, they could hypothetically justify it by selling PS5's at some insane markup and generating billions in sales. However, with Bitcoin? The price derived is from the belief that it will go higher. If enough investors believe it will go to $100,000, investors will buy it at $60,000, $70,000, $80,000, $90,000 and $99,999.
Many chose to state the fundamental justification when trying to justify Bitcoin's price tag is the technology behind blockchain. The speed, anonymity, and self-governing characteristics make it one of the most fascinating technologies of the 21st Century. However, that technology is relatively open-source – one can create a cryptocurrency in hours (See: DogeCoin).
So is Bitcoin all part of a Mania? Have we been brainwashed to think that Bitcoin is worth more than the letters and numbers it's stored in?
Here is a fun exercise. I will take the Tulip Mania explanation I wrote a couple of weeks back when I talked about GameStop, but instead, replace it with Bitcoin.
"In the early 1600s, Bitcoin first arrived on the shores of Holland from Turkey. The flower was exotic, beautiful, and nothing like any other flower that grew in Holland at the time.
Like Turmeric was to the U.K. before exploring India, Bitcoin became an extremely exclusive and highly luxurious status symbol. It was stated that "it was deemed a proof of bad taste in any man of fortune to be without a collection of bitcoins." Bitcoin became a thing to have to "keep up with the Joneses" at the time. Therefore the middle class started to collect Bitcoin to portray this image of wealth.
This demand and love for Bitcoin inflated the cost of Bitcoin, with the rarest Bitcoin in the year 1636 going for $750,000 in today's money. However, many Bitcoin ranged from $50,000 – $100,000. At this point, Mania ensured. Individuals who held extremely rare Bitcoin saw their assets increase in value just by having it. People believe the stock price could never go down and that "the passion for Bitcoin would last forever."
Individuals started buying Bitcoin on leverage and began to use derivatives in hopes that they would profit from borrowed money. However, as confidence started to waver, Bitcoin owners started offloading as fast as possible. This meant people with derivatives were selling at a lower price they bought it at, desperately trying to offload so they could pay their creditors. By 1638, Bitcoin prices returned back to normal."
Obviously, there are fundamental differences between Tulips and Bitcoin. For one, each Bitcoin is the same, and that one could value a specific Tulip at a different price from another person. However, the rarity factor still exists.
There was a recent Bloomberg Opinion article talking about the investors in Bitcoin. To summarise, they stated that given the fluctuations in the price of Bitcoin, Bitcoin investors might be just as or even more impressive than the actual Bitcoin itself – and I would have to agree. Investors who believe Bitcoin will reach $100,000 grasp onto something so non-fundamental it is foreign to many traditional investors, including myself. However, it may just be correct enough to work.
Here's an interesting juxtaposition. There are currently just over 25 Million Currently Infected Patients of Covid-19, with 2.4 million deaths*. However,
The point is, main street continues to grapple with the Coronavirus. However, if you were looking at the financial markets, you would've thought we were in one of the largest economic expansions in history.
So much so, Warren Buffet's favourite indicator is flashing signs of mania. Currently, the U.S equity market cap is more than double the GDP of the United States. The last time this happened was during the bubble of the 2000s.
That is a long, convoluted, and somewhat poor segue to the main point of this article. A lot has happened in the past couple of days, with many asset classes at significant highs during one of the worst pandemics in history – here's an article to summarize them.
As vaccinations pick up in the United Kingdom, alongside lockdown restrictions starting to show results in lower cases and deaths, investors have been flocking the pound as optimism for the United Kingdom's economy. It is important to note that 1.45 was the bid before Brexit was announced in 2015, making it a ripe target for bulls to take.
Vaccines have played a considerable part in the strengthening in confidence in the United Kingdom, helped by the fact that they did not join the European Union's vaccine effort. This enabled them to approve and administer vaccines at a faster rate than their European counterparts.
Nearing the same time last year, we had an unprecedented event occur – traders saw the price of WTI Crude Oil on their terminals go negative. A year of supply cuts, recovering demand, and recently a rise in tensions in the middle east has pushed the black Gold back to pre-pandemic levels.
After an influx of institutional attention dawning upon the digital currency, including the likes from Mastercard, JP Morgan, Morgan Stanley, and of course, Tesla, Bitcoin has reunited with bulls taking the price up to just under $50,000 per Bitcoin. To note, Around the end of November last year, we saw Bitcoin at around $20,000.
The S&P 500 has closed at an all-time high, touching 3,950 in futures trading. The index is up 7% year to date. If we lived in an ordinary world, all-time highs in the equity markets would be the headline of the day.
However, it seems like stocks are too boring nowadays, and everyone wants to know which altcoin is next to return 1000x. However, many companies in the index are producing blowout or at least better than expected earnings. Considering the macro-environment we are currently living in, is quite an achievement.
I had concerns about the notion that investors were considering Gold's valuation – not something you want to be talked about in a safe-haven asset. I believe a safe-haven asset should be there to ballast your portfolio in times of risk-off periods, meaning investors should be able to flock to it / rely on it to hold their portfolio in steady shape.
Gold's steady decline eases my concerns, with Gold trading at around $1,816 an ounce, way off its $2,000 highs. We can see a continuation of the trend should see prices around the $1,700 - $1,750 level.
Markets are frothy – stay safe, and trade safe.
*For you tinfoil hats-wearers out there, I will entertain you by including the fact that there are up to 650,000 deaths due to the flu each year. Take that what you will