One of the biggest cryptocurrency exchanges, Coinbase, is underperforming on Wall Street. The prices of the bonds and stock of the exchange indicate fear and an increased level of doubt. This comes after the collapse of one of the leaders in this industry, FTX. After FTX collapsed, things took a turn for worse, with Bitcoin’s price dropping rapidly. FTX was not the last company to file for bankruptcy, however, with other major crypto companies following in its footsteps. All of these occurrences have increased the level of doubt and fear in investors. As a consequence, Coinbase, the biggest cryptocurrency exchange in the United States, suffered sour weeks on Wall Street.
According to the Wall Street Journal, a market-based measure implies that most investors are not sure whether Coinbase will survive. According to an article from WSJ, the cryptocurrency market is reeling from existence. To add to that, they claim that Coinbase is losing the confidence of investors and burning its cash rapidly. The author of the article, Sam Goldfarb, supports his claim on the fact that Coinbase’s shares are down by more than 80% and that the company’s market capitalization is down to $11 billion.
According to S&P Global Market Intelligence, Coinbase spent more than $270 million in cash during the last quarter of 2022. As one would assume, the success of Coinbase is highly dependent on the cryptocurrency market performance. Since Bitcoin leads this market, when this cryptocurrency underperforms, the whole industry underperforms.
Is Coinbase Collapsing?
Based on the above-mentioned WSJ article, Coinbase may not survive the upcoming recession. Well, such a statement can be made for every company in the world. Similar to how Coinbase’s stock lost most of its value in 2022, Snapchat’s, Meta’s, and Tesla’s stocks also lost most of their value in 2022. Before making such statements one must consider the fact that the crypto industry is yet to get on the same level as other industries. Most countries don’t have clear regulations or guidelines for crypto companies, making it harder for them to operate. Comparing a company that operates in one of the most volatile markets in the world with companies that operate in industries that have the support of governments doesn’t make sense.
Ultimately, Coinbase is not collapsing. Whether Coinbase experiences a bank run similar to FTX is a different story. Determining whether a cryptocurrency exchange is collapsing should be done carefully and not just by looking at the market cap of its stock. For your information, a bank run would ultimately mean bankruptcy for Coinbase.