The fate of Coinbase (and crypto) hangs on a silk thread: a deep insight

the central theses

• Coinbase has dropped $ 86 %
compared to its IPO rating of $ 100 billion
• Since then it has cut much less than Bitcoin, Ethereum, the Nasdaq and almost all other benchmarks
• This week the company was sued by the SEC for violating securities laws, so that its shares fell by a further 27 % compared to the previous week
• Coinbase went to the stock exchange in April 2021 under the supervision of the SEC, and the stock exchange sued the regulatory authority two months ago because it had not reacted to requests for regulatory clarity
• Our Head of Research, Dan Ashmore, analyzes the previous performance of the share and writes why the fate of the entire company is at stake
• The court proceedings represents a big day for crypto, writes Ashhor, and a much more fascinating case than the law

Coinbase, the world's largest listed crypto company, completed the trade last week with a price of $ 64.55. Then the second knocked on the door.

The Coinbase sued the financial supervisory authority on Tuesday on Tuesday that the company had failed to register as a broker, national securities exchange or clearing point, thus violating US investment laws. The next morning the shares opened at $ 47.10, a 27 % decline compared to the closing price on Friday before (on Monday they fell by 7.5 % after Binance was sued).

After a slight recovery, Coinbase is traded at $ 53.26 on Thursday morning, market capitalization is $ 12.5 billion. This represents a painful drop by 86 % compared to the IPO in April 2021 when the company had an evaluation of almost $ 100 billion or $ 381 per share. Out of

The decline of coinbase summarizes the entire cryptocurrency industry in many ways during this period. The room has been completely devastated since the highlight in November 2021. The transition to a strict monetary policy of central banks around the world in response to rampant inflation has withdrawn the ground under the feet (to use the crypto-native expression).

Despite the size promises of some investors during the pandemic (possibly dazed by the explosives, which were achieved in the course of the Robinhood and cryptocurrency booms on a broad front), Bitcoin and all other cryptocurrencies (at least for the time being) are traded like high-risk value.

Bitcoin could be an interesting discussion about whether it can ever decouple or take over the crown of inflation protection. However, the reality looks like that from 2023 everything is correlated in the area of cryptocurrencies and is at the long end of the risk spectrum.

I compiled a deep dive to this point in March, when there were rumors that Bitcoin would decouple because the banks went down. All possible unusual correlation diagrams have been used, but sometimes there is no reason to complicate things - take a look at this diagram of Bitcoin vs. Nasdaq in the past two years that should show you everything you need to know (please excuse the axis crime):

The stock of Coinbase would always fall if the cryptoraum went back - this is not rocket science, since the step -down relationship could also be seen on the way up. And when cryptocurrencies suffered one blow after the other, from Terra to Celsius to FTX and so on, the prices broke in and the wave of enthusiasm for these new digital assets turned into a trickle. For Coinbase, a company that is instructed for its turnover on this enthusiasm, also called trading volume, this was a problem. And the share price decreased.

in June 2022 Coinbase released 18 % of his workforce. Six months later, the company announced a further round of discharge, and an additional 20 % of the company chopped.

The crash of Coinbase, however, means more than just the scandals of 2022 or the drop in prices and the mismanagement of risks in the entire industry. It also illustrates the difficulties that it brings today to be a crypto company in the United States, and the increasingly hostile regulatory environment with which it is confronted.

The precedent for the SEC lawsuit this week came in March, when the SEC published a Wells announcement (which normally signals that legal steps are imminent), whereupon the share fell by 25 %. The company has repeatedly demanded regulatory clarity and asked the SEC openly to give clear guidelines and to clarify, among other things, where exactly cryptocurrencies are related to the current securities laws.

next month Coinbase passed the counter -offensive, sued the SEC and asked the regulatory authority to answer a petition from July 2022, in which it was asked whether the existing securities law could be extended to the cryptocurrency industry.

"Today we submitted a tight lawsuit to the US district court to force the SEC to respond with" yes or no "to a application application that we had submitted last July and in which we asked her to provide regulatory guidelines for the crypto industry," wrote Paul Grewal. Coinbase, on Twitter.

This is exactly what makes the case of the second against coinbase so fascinating. I wrote Early this week about how I believed that Binance, which was sued on Monday, 24 hours before Coinbase, was sued by the SEC. Binance is an stock exchange that operates in an incredibly opaque way because it refuses, for example, to provide information about her liabilities and act without physical headquarters, which will always attract the anger of the supervisory authorities. Whether you like it or not, that is the reality of the law in the United States, and therefore both of the stock exchange and more broader interest groups in the industry should have been expected to be sued in general (in fact, numerous cases and studies are underway). against the various companies and managers from Binance).

at Coinbase, however, it is different. It is a stock exchange that noted in April 2021 under the supervision of the SEC on the Nasdaq. It ended up to comply with the regulatory authorities' provisions by publicly asking them to open the communication channels and ensure clarity. If the SEC now accuses them of being an unregulated securities exchange, why were they allowed to go to the IPO two years ago? Has something changed in the past two years that leads to Coinbase now violating the law where it was completely legal before?

I'm not a lawyer - on the contrary, and these are real questions. I really don't know, and therefore it is a fascinating case, in contrast to the Bony case, which appears like a typical regulatory complaint. Obviously, the regulatory system has changed since FTX's collapse in November, and that is no surprise. I have already said it and I say it again: the majority of the cryptocurrency industry is a swamp of insider trading, fraud and machinations to quickly get rich. FTX increased the importance of this topic in the eyes of the supervisory authorities, and the industry jumped to the top of the queue. Nevertheless, I still believe that the questions mentioned above are entitled - and that is what makes this upcoming legal process so exciting for me.

but do not deceive yourself: no matter how you think about whether this is "right" or "wrong", it is an existential threat to coinbase as a company. One could go even further and speculate about the effects of a loss of court for Coinbase on the entire crypto industry in the United States. Sure, crypto will live on, but how will centralized companies act in this area afterwards? Why shouldn't this notoriously locate -independent industry simply move abroad? And although this is possible, the loss of the world's largest financial economy would be a devastating blow to the crypto ecosystem-and the associated blockade of institutional cash. Which asset managers on Wall Street would then be interested in Krypto? Which companies would bring it into their balance sheet? Where ... would it go?

These are challenging times for coinbase investors. This is a company whose value is now estimated to be a measly $ 12.5 billion. The Hysterieblase of that happy days has actually burst when JPEG pictures were traded for hundreds of thousands of dollars, Tesla bought tons from Bitcoin and hectically answered trad-fi managers to start with the allocation into this emerging, dynamic and only aspiring investment class.

The following table provides information about coinbase in particular. Since his IPO in April 2021, he has a decline of 86 % compared to a large number of benchmarks and has left each of them.

Bitcoin has fallen by 59 % since the IPO of Coinbase. Ethereum lost 20 % (it has more than doubled between April and November 2021). The technology -based Nasdaq lost 6 %, while the S&P 500 recorded a slight increase with 3 %. Even the quasi-bitcoin holding vehicle Michael Saylors Microstrategy "only" lost 67 %.

There is no exaggeration to say that coinbase investors from the early days of the company's IPO could have voted almost any other asset and would have been better off (well, almost everyone. There were tokens like Luna and FTT).

for the future the picture has never been a mere. The macroclima is insecure. Even if we may approach the end of the tightening cycle, interest rates have risen from almost zero to over 5 %, and monetary policy is known to work delayed. Perhaps there may still be pain - the employment situation is still relatively tight, and if the Fed stubbornly sticks to its inflation goal of 2 %, it will not be an easy way to get there.

and then the regulatory picture deteriorates from day to day. Coinbase will have his day in court and it will be a big day. Not only for the stock, but for crypto as a whole. This is an industry whose reputation was damaged by one scandal after another last year and the prices, the volume and the general interest in this area were completely wiped out. It has never needed such an urgent victory.

those who stick to these coin base shares, bet on the fact that victory will come, but the challenges are diverse and the path lying ahead is steep. And that applies to the entire industry, not just to Coinbase.