Friday, January 13, 2023

CRYPTO-CAPITALI$M JUST LIKE REAL CAPITALI$M

Coinbase Confirms End of an Era
Cryptocurrency exchange to cut nearly 1,000 additional jobs and record significant charges.


LUC OLINGA
JAN 11, 2023 

The horizon is uncertain for Coinbase.

The cryptocurrency exchange is still unable to get out of the bad patch that the cryptocurrency sector has been going through for a year.

The cryptocurrency market has lost nearly $2.1 trillion compared to its all-time high of $3 trillion reached in November 2021. The market is currently worth some $886 billion according to data firm CoinGecko.

Bitcoin (BTC), the most popular digital asset, has lost 75% of its value compared to its all-time high of $69,044.77 reached on November 10, 2021. BTC prices are currently trading around $17,233.76. The prices of the king of cryptocurrencies have relatively stabilized since the year 2023.

The biggest problem in the young blockchain-powered financial services industry is mistrust. The mistrust of the general public caused by a succession of scandals after the crypto craze of 2021.

'Difficult Decision'


Last May, sister tokens Luna and UST collapsed overnight causing billions of dollars in losses to retail investors and institutional investors. This disaster caused a credit crunch which forced the hedge fund Three Arrows Capital, or 3AC, to go into liquidation. Imminent crypto lenders like Voyager Digital and Celsius Network have filed for Chapter 11 bankruptcy.

This game of dominoes revealed the incestuous relationships and the interdependence between the actors of the crypto space. Customers of these platforms, who lost their savings, were often unaware that their money was often loaned to other firms.

In November, Sam Bankman-Fried's crypto empire collapsed. This disaster was a real bombshell as the former trader was the institutional face of crypto. He had rescued many firms during the credit crunch and his FTX cryptocurrency exchange was valued at $32 billion last February.

The FTX rout has yet to reveal all of its casualties. The biggest, however, remains the confidence in the crypto industry which has completely collapsed. Retail investors have fled the sector, while institutional investors are much more cautious, especially since a recession is expected this year.

This is confirmed by Coinbase. The platform has just announced the loss of nearly a thousand additional jobs. Coinbase (COIN) - Get Free Report will eliminate 20% of its current workforce, or approximately 950 jobs.

"We need to make sure we have the appropriate operational efficiency to weather downturns in the crypto market, and capture opportunities that may emerge," CEO Brian Armstrong told employees in a blog post on January 10. "Therefore, I've made the difficult decision to reduce our operating expense by about 25% Q/Q, which includes letting go of about 950 people."
'Painful'

"This is the first time we've seen a crypto cycle coincide with a broader economic downturn," Armstrong continued. "As we examined our 2023 scenarios, it became clear that we would need to reduce expenses to increase our chances of doing well in every scenario. While it is always painful to part ways with our fellow colleagues, there was no way to reduce our expenses significantly enough, without considering changes to headcount."

Coinbase will therefore shut down several projects.


All of these actions will result in a charge of between $149 billion and $163 billion, the company said in a regulatory filing. These charges are mainly severance pay and other termination benefits and will be included in the results of the first quarter of 2023.

The crypto firm also said it expects adjusted EBITDA losses for the full year to be within a prior $500 million “guardrail” set last year.

The new job cuts are the second wave of job eliminations by Coinbase in less than a year. Last June, the company cut 18% of jobs, or 1,000 people who were laid off.

These layoffs mark the end of an era of abundance and insolent growth for the crypto industry that had benefited Coinbase. The platform had its IPO in April 2021. The shares had thus soared to $341.

But they have fallen sharply last year. Currently the stock price is around $38, which means a the drop is 89%.

Coinbase Cuts Costs Yet Again as Crypto Winter Drags On. Should Investors Sell Now?

By Jon Quast 
– Jan 12, 2023
MOTLEY FOOL 

KEY POINTS

Coinbase is aggressively cutting operating expenses by 25% sequentially, unfortunately at the expense of about 950 employees.

It's likely that Coinbase will survive 2023 because of its strong financial condition, but that's not an investment thesis.

Coinbase's focus on developing new revenue streams could lead to market-beating gains if the cryptocurrency space returns to growth in the future.


NASDAQ: COIN
Coinbase Global
Market Cap
$11B
Today's Change
(3.28%) $1.56
Current Price
$49.11
Price as of January 13, 2023

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Is crypto coming to an end or is it simply going through winter on its way to spring?

On Jan. 10, Coinbase Global (COIN 3.28%) co-founder and CEO Brian Armstrong announced that the company was aggressively cutting operating expenses, another sign of the ongoing slowdown in the cryptocurrency space. As a part of this belt-tightening, the company is letting go of 950 employees - about 20% of its workforce.

Coinbase's latest cuts underscore and are a product of the cryptocurrency's ongoing challenges. Unfortunately, there's no real clarity about when or if things will improve in the industry writ large. But what do these cuts mean for Coinbase's long-term prospects? Are these layoffs a sign of the end times or a smart readjustment that will help the company withstand the cold crypto winter?

The rise and fall of Coinbase

In 2021, Coinbase's full-year revenue jumped to $7.84 billion -- up from just $1.27 billion in the previous year. That's over 500% year-over-year growth: A mind-numbing amount, especially at such a scale. Moreover, that growth was eye-poppingly profitable at a 46% net profit margin.

At that time, though, the cryptocurrency space was on a tear. The overall cryptocurrency market cap jumped from $192 billion in 2019 to $2.3 trillion in 2021, sparking extreme interest from investors. And Coinbase was one of the best-positioned players to benefit from the surge.

But fast forward to today. Cryptocurrency's market cap has dropped from roughly $2.9 trillion at the peak to about $855 billion as of this writing, according to CoinMarketCap. Over the past year, investors have lost billions as stablecoins have, ahem, destabilized; centralized exchanges have shut down, and investors using leverage have been liquidated. Suffice it to say, confidence in crypto is rattled.

Coinbase's operating results reflect these headwinds. Net revenue from the first three quarters of 2021 was $4.85 billion; after the same period in 2022, it dipped to $2.5 billion, nearly a 48% drop. Net income looks even worse, swinging viciously from $2.8 billion during the first three quarters of 2021 to a net loss of $2.1 billion in the first three quarters of 2022.

What's more, Coinbase's trading volume has plummeted. In the third quarter of 2022, Coinbase facilitated $159 billion in crypto trades, down from $327 billion in the previous year.Smaller alternative coins have been hit particularly hard. Coinbase facilitated roughly $193 billion in altcoin trading in the third quarter of 2021. In Q3, trading volume for alt-coins was just $57 billion.

Where does Coinbase go from here?


Let's not sugarcoat this: Times are tough for Coinbase. The company already laid off about 18% of employees back in June. When announcing this week's layoffs, Armstrong acknowledged that the previous round of cuts didn't go far enough.

Coinbase is now trying to slash operating expenses by 25% quarter over quarter. The latest layoffs will cost the company $149 million to $163 million in one-time restructuring expenses, related to severance and other termination costs. That's a hefty number, but it still represents an immediate net savings. In the third quarter of 2022, Coinbase's operating expenses were over $1.1 billion. 25% savings, therefore, will save the company about $287 million quarterly.

This leads to my first takeaway: Coinbase will endure for now because of its financial position. As of Q3, the company had over $5 billion in cash and nearly $1 billion more in cryptocurrency assets. The move to cut operating expenses gives Coinbase an ongoing runway even during the dark crypto winter.

Moreover, Coinbase's bread-and-butter has been transaction fees from trading. But new revenue sources are quickly becoming more important. For example, the company enables staking for Solana and Ethereum, a growing revenue stream for the company. This staking revenue has the potential to increase, especially considering Ethereum only just recently switched to a staking protocol.

Additionally, Coinbase is experimenting and pushing innovation in the crypto space. With its latest round of layoffs, Armstrong said it was shuttering some projects with a "lower probability of success." But it'll still be looking to enable new ideas. Past experiments led to the co-creation of stablecoin USD Coin. And USD Coin's success to date is a big reason why Coinbase is now generating over $100 million in quarterly high-margin interest income.

This brings us to the second takeaway: Some parts of Coinbase's business are still growing, even amid this slowdown.

The Coinbase conundrum

It's not a satisfactory investment thesis to merely say that Coinbase is a buy because it will survive 2023. The Coinbase conundrum begs a deeper question, demanding investors to pick sides in one key debate: Does cryptocurrency even have a future?

Some would say, simply, "no". The bankruptcy of crypto-exchange FTX has drawn comparisons to Enron and is leading to greater regulatory scrutiny of the overall industry. The U.S. is discussing a Central Bank Digital Currency, which could lead to a banning of "rival" cryptocurrencies like Bitcoin.If you doubt the long-term hold of crypto and these outcomes seem likely to you, then Coinbase stock likely doesn't make sense for your portfolio.

But Armstrong is far more optimistic: He's said that "recent events will ultimately end up benefiting Coinbase greatly." To his point, Coinbase has historically embraced smart regulation. As a public company, it's also transparent about its finances, unlike some failed players.

If cryptocurrency has a bright future, then Coinbase stock may be the best way to invest. Its business model can profit from multiple possible outcomes in the space. And it's shown high cash-flow-generation potential. All this will likely make Coinbase a market-beating investment if -- and only if -- crypto winter ever gives way to springtime.


Coinbase Strikes a Massive Blow to Bankman-Fried and FTX

Cryptocurrency exchange CEO Brian Armstrong delivers a scathing critique of his rival.

LUC OLINGA
JAN 11, 2023 

Coinbase Chief Executive Brian Armstrong does not mince words.

Nearly two months after rival Sam Bankman-Fried's empire went bankrupt, he's just delivered a massive blow to what until recently was the institutional face of crypto.

Bankman-Fried's empire consisted of the FTX cryptocurrency exchange. Before its rout, it was the third largest cryptocurrency exchange based on volume after Binance and Coinbase. FTX last February was valued at around $32 billion.

Besides FTX, Bankman-Fried also founded Alameda Research, a hedge fund that also serves as a cryptocurrency trading platform for institutional investors.

The two companies had to file for Chapter 11 bankruptcy on Nov. 11 after they were unable to meet the massive withdrawals of funds requested by their customers and investors.
Armstrong: 'Dark Times Weed Out Bad Companies'

The Department of Justice and the Securities and Exchange Commission have filed a series of civil and criminal charges including fraud and conspiracy to defraud FTX clients and investors.

"Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.

Bankman-Fried, known in the crypto space by his initials, SBF, was extradited to the U.S. on Dec. 21 by the authorities of the Bahamas, where he lived and where FTX is headquartered.

He was released after his parents, both law professors at Stanford University, signed a $250 million recognizance bond pledging their California home as collateral. Two other friends with significant assets also signed, according to news reports.

During a Jan. 3 hearing in U.S. District Court in New York, Bankman-Fried pleaded not guilty to the charges against him. Bankman-Fried's trial is scheduled for Oct. 8.

Like many in the crypto industry, Coinbase's Armstrong appears persuaded that Bankman-Fried is guilty.

"In 2022, the crypto market trended downwards along with the broader macroeconomy," he wrote to Coinbase employees on January to announce a new wave of layoffs. "We also saw the fallout from unscrupulous actors in the industry, and there could still be further contagion."

"Dark times also weed out bad companies, as we’re seeing right now. But those of us who believe in crypto will keep building great products and increasing economic freedom in the world."

Armstrong Stays Optimistic About Crypto Future

Unlike FTX, Coinbase (COIN) - Get Free Report is a public company. This means that it is more transparent, particularly vis-à-vis investors, and is closely monitored by regulators, including the SEC.

The company's books are also published at the end of each quarter, which enables everyone to examine them closely and get a good idea of ​​the health of the platform.

This was not the case of FTX, which was a private company. The fallen crypto exchange did not have to open its books to investors or anyone else. As a result, investors and customers had to believe everything its leaders wanted to tell them.

After these blows against Bankman-Fried and his empire, Armstrong wants to be optimistic about the future of the crypto industry, which has been weakened by repeated scandals.

"Despite everything we’ve been through as a company and an industry, I’m still optimistic about our future and the future of crypto," he wrote.

"Progress doesn’t always happen in a straight line, and sometimes it can feel like we’re taking two steps forward and one step back.

"But just like we saw with the internet, the most important companies not only survive but thrive during down markets by being rigorous with cost management, and continuing to build innovative products."

Coinbase has, in less than a year, cut 38% of its workforce, or nearly 2,000 people. The company saw its stock plummet: When it went public in April 2021, Coinbase stock had risen to $341. It is currently trading around $43, a fall of 88% in less than two years.

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