It’s been a rough old week for crypto investors everywhere, with the latest crash in the digital currency wiping out nearly $600 billion in market capitalization in a single week. Unsurprisingly, many businesses who ply their trade in this industry have also been hit hard during this period, with cryptocurrency trading platform, Coinbase being decimated.
In the past week, the well-known platform used by millions has seen its value cut in half, including its biggest-ever one-day drop. And, with signs looking less than positive over the coming days and weeks, it looks like the famously volatile cryptocurrency market is set to face a prolonged storm.
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Coinbase reported a $430 million net loss in the first quarter, or $1.98 per share, on declining sales and active users. This is compared to analyst predictions that suggested the company may see a profit of 8 cents per share. Instead, revenue was down as trading volumes fell, and active monthly users declined 19% from the fourth quarter.
However, despite the analyst predictions, many shareholders were unlikely to be surprised by the drop in value, with Coinbase seeing a share price decline of 43% in the four days leading up to their first-quarter earnings release. The latest news makes for even more sobering reading when compared to its IPO price just 13 months ago. Back then prices hit a high of $429 per share, but on Wednesday fell as low as $53 per share.
Patrick O’Shaughnessy, who covers Coinbase for Raymond James, stated that there was uncertainty over whether the crypto market was in one of its typical funks or if this was the post-pandemic bubble finally deflating.
“While management strongly believes the former will prove to be true, we suspect there is more than a bit of truth to the latter, particularly with crypto failing to serve as an inflation hedge thus far in 2022”.
There’s also plenty of speculation that the impending reality of increased regulation in Wild West-like world of crypto will result in more losses. Governments around the world have made it clear that regulation is coming, with the US Treasury Secretary Janet Yellen stating in April that more government oversight is needed in the fledgling industry:
“Our regulatory frameworks should be designed to support responsible innovation while managing risks – especially those that could disrupt the financial system and economy".
On Tuesday, Yellen testified to the Senate Banking Committee, warning legislators about stablecoins. In theory, stablecoins are better suited to commercial transactions than other cryptocurrencies that can fluctuate in value. However, a recent run on the TerraUSD stablecoin dropped its value to as low as 30 cents, sowing doubt among investors about the safety of stablecoins. Terra recovered somewhat, to about 68 cents on Wednesday.
All this also comes on the back of President Joe Biden’s executive order on digital assets in March that urged the Federal Reserve to explore whether the central bank should create its own digital currency. Biden’s order also directed federal agencies to study the impact of cryptocurrency on financial stability and national security.