Cryptocurrency is Crashing, and Coinbase is Feeling the Brunt

Cryptocurrency is dropping like a stone Wednesday morning as panicked investors jump ship. Major exchange platform Coinbase has lost 75% of its share value since the start of the year. How low can it go?

Inflation, uncertainty, and negative headlines are coalescing to send the value of cryptocurrency crashing back to the ground. After Bitcoin hit its all-time high in November 2021, the standard plummeted to nearly $30,000. Recently, Bitcoin was trading under $30,000 — a critical psychological level for enthusiasts disappointed by the coin’s recent performance. Ethereum, the second most popular currency, is also cratering, briefly dropping to just under $2,200 Wednesday morning.

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The stock value of the exchange platform Coinbase is a good illustration of how dire things are getting in the crypto space. Coinbase has lost 71% of its share value since the start of the year due to low trading volumes and plunging crypto prices. Previously, enthusiasts had posited that cryptocurrencies would hold their value in the face of inflation. Now, those claims seem laughably naive in the face of a serious challenge for blockchain technology.

“With shares of Coinbase Global selling off sharply during today’s trading session and then plunging further following the market close in reaction to the company’s release of a weaker-than-expected 1Q22 report, the stock is trading as if COIN will burn through all of its cash and then become insolvent,” observes Mark Palmer, an analyst for BTIG. Coinbase’s stock fell another 14% premarket Wednesday morning, indicating a strong negative investor sentiment. 

What’s Going on With Crypto?

Coinbase missed its earnings estimates badly, according to analysts. The exchange platform overestimated its performance by $300 million, indicating that the situation in the crypto sphere is worse than analysts could have expected. Still, some crypto specialists insist that market watchers should have seen this coming, given how many firms are offloading their risky assets amid unprecedented inflation and a global economic slowdown. 

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“While the company’s 1Q22 revenue and monthly transacting users (MTUs) missed consensus estimates and management said they expected even softer results in 2Q22, in our view those disclosures should not have been all that surprising to anyone who has watched the prices of digital assets decline over the past few months amidst a general decline in the prices of risk assets globally — at least not surprising enough to trigger a 16% decline in the stock during extended trading following a 12.6% decline during the trading day,” Palmer continued.

Is Crypto Dying?

This alarming rhetoric sparked discussions on Twitter in which some enthusiasts feared their assets might be unsafe at Coinbase. If the company declares bankruptcy, it could drag many crypto assets with it. This is a nightmare scenario for cryptocurrency enthusiasts, as Coinbase is one of the most prominent and visible exchange platforms.

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“There is some noise about a disclosure we made in our 10Q today about how we hold crypto assets,” Coinbase CEO Brian Armstrong insisted in a recent Twitter post. “Your funds are safe at Coinbase, just as they’ve always been. We have no risk of bankruptcy; however, we included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties.”

Many users on social media took an opportunity to laugh at crypto investors’ misfortune, saying this outcome was inevitable. Some opponents have even referred to crypto as a “glorified Ponzi scheme,” and suggested that the endeavor exists only to funnel money from recent adopters to the programmers who create the blockchain algorithms that underpin various standards.

Stablecoins Prove Unstable

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Even the poorly-named stablecoin market is proving itself unstable these days. UST, a stablecoin supposedly pegged to the value of the US dollar, is now trading for less than 30 cents. A similar token, Luna, lost 99% of its value over the past week. These two tokens are both products of a blockchain project called Terra. Project creator Do Kwon is now implementing last-ditch efforts to return them to some semblance of value.

“I understand the last 72 hours have been extremely tough on all of you – know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this,” Kwon tweeted Wednesday. 

Read More: Check out the latest Mind Your Dollars stock and financial news.

UST uses a complex algorithm to maintain the value of its coin at around $1. This allows stablecoins to function as supposedly safe stores of value. Their algorithms mint and destroy tokens to keep the price locked in. However, as crypto traders have sold out of the space rapidly over the past few weeks, UST has been unable to quickly shrink its supply to keep the token from crashing. 

This incident has only further fueled the panic in the crypto sphere. Enthusiasts are trying to get out with some value. A recent Glassnode report indicates that as many as 40% of Bitcoin investors are currently underwater. This is an alarming rate for a token that is supposed to become the de facto currency of the internet. Only time will tell whether the fledgling crypto industry can survive this brutal sell-off.

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