Why Is Coinbase (COIN) Stock Trading Lower This Month?

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Shares of Coinbase (NASDAQ:COIN) are trading lower in June to reflect a bloodbath in the Cryptocurrency market .

• 1. Layoffs Needed to Mitigate Falling Revenues
• 2. Why Now?
• 3. Competition Heats Up
• 4. Coinbase Pro Shutting Down
• 5. Summary

Earlier this month, Coinbase announced it is planning to reduce 18% of its workforce or around 1,100 employees, making it the latest of several crypto exchanges that have cut jobs recently.

In the company's blog post , CEO Brian Armstrong cited recession fears, saying it could result in“another crypto winter” and stay for a long time. Armstrong reflected on how trading revenues fell sharply during previous crypto winters and that's why the crypto exchange has to plan for the worst in order to keep its business alive.

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The company, which currently has nearly 100 million users and $256 billion in assets on its platform, is looking to complete the layoffs by the end of this month. Coinbase will spend between $40 million and $45 million to pay for staff severance and other redundancy benefits.

Armstrong said Coinbase had to cut its workforce because it hired too many people over a short period of time. The company currently has around 5,000 employees, up from just 1,250 last year, added Armstrong.

The reduction of the workforce marks one of the latest in a series of challenges Coinbase faced this year. The crypto exchange posted a $430 million Q1 loss last month as the number of monthly active users dropped 19%.

Furthermore, the company also recently announced it was pausing hiring and rescinding several job offers due to market conditions and“ business prioritization efforts.”

Following the crypto boom last year, Coinbase accelerated its hiring pace and its executives had to determine how many new employees were needed to address that boom.

'While we tried our best to get this just right, in this case it is now clear to me that we over-hired,' Armstrong said.

The layoffs in the crypto industry come amid a steep sell-off in 2022, with Bitcoin and Ethereum plunging more than 50% and 65% year-to-date, respectfully. This is because investors are shifting away from riskier assets as inflation hovers around its highest level in more than 40 years and global central banks continue to hike interest rates to curb the rising costs.

The entire crypto market value fell below $1 trillion this month, which marks the first time it has dropped below that level since January last year.

Other crypto firms including Crypto.com and Gemini Trust also announced layoffs over the recent weeks. Crypto.com plans to reduce around 5% of its workforce, while Gemini said it will reduce roughly 10%, marking the first time ever the company slashed its workforce.

Mizuho Securities analyst Dan Dolev noted that recent trading patterns on Coinbase are suggesting potential crypto exhaustion. According to Dolev, the average trading volume on the Coinbase platform on Bitcoin down-days was up 15% compared to days when the cryptocurrency was in the green.

However, that number nearly tripled in recent months, with down-day volumes being up around 42% more than on up-days.

He also warned investors not to get too excited about the late surge in trading volume earlier this month, because the rise“appears to be fading... COIN is still tracking 10-15% below 2Q consensus and ~30% below 1Q level,' he added.

In another blow to Coinbase, Binance.US announced it is cutting its spot Bitcoin trading fees. Binance.US, the partner platform of the world's largest cryptocurrency exchange Binance, said it will allow customers to trade USD, USDT , USD Coin, and Binance USD for spot bitcoin with no fees.

The crypto market has been having a very difficult year as investors continue to offload their risk assets due to record-high inflation and geopolitical tensions. Bitcoin dropped to a new 2022 low when it went south of $18,000, the first time it has touched that level in a year and a half.

Trading volumes, which have been one of the key revenue drivers for Coinbase, also declined sharply following the sell-off. The crypto exchange started testing a new subscription-based service dubbed Coinbase One, which is set to allow customers to trade up to $10,000 per month without any fees.

Rival crypto and stock exchange Robinhood was the first to launch a zero-fee trading service, which has weighed on retail investing over the past few years as some of the largest brokers such as Interactive Brokers, Charles Schwab, Fidelity Investments, and E*Trade Financial also moved to commission-free investing.

This has also been a headwind the crypto industry has been facing as an increasing number of trading platforms decide to combine crypto and stock trading. In May, cryptocurrency exchange FTX US announced its plan to launch commission-free stock trading. On the other hand, TradeStation's platform , which started as an equity trading platform, is now focusing more on crypto trading services as well.

Coinbase will be closing down its professional crypto trading platform Coinbase Pro later this year as the company continues to add more advanced investing features on its regular platform.

The company said the platform forced its customers to“rely on Coinbase Pro and Coinbase.com for overlapping sets of features, and often experience friction when transferring balances back-and-forth between the two products.”

“To resolve this friction and offer customers the best of both worlds, we have rebuilt the full Coinbase Pro advanced trading experience within the Coinbase mobile app and Coinbase.com. As we continue to add more features to Advanced Trade on Coinbase, we will sunset Coinbase Pro later this year,” it said.

The Coinbase Pro move marks yet another move by the crypto company to slash costs as it seeks to survive the 'crypto winter'.

Coinbase stock trades lower this month as crypto prices, as well as falling trading volumes, continue to hurt the company's financial profile. Coinbase announced a series of moves to push costs lower while investors wait for a better outlook for the crypto market before coming back from the sidelines.

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Updated on Jun 24, 2022, 4:36 pm

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