Coinbase share price has fallen 80% since IPO – can it recover?

During the pandemic, interest in cryptocurrency soared with prices of popular coins reaching new heights and institutional investors starting to sit up and take notice.

It seemed a logical step, then, for one of the world’s biggest cryptocurrency exchanges to capitalise on this and list on the public market.

Last April, Coinbase made its market debut to much fanfare. Its shares closed their first day’s trading at $328 – 31 per cent above the reference price above $250. It represented just how mainstream cryptocurrencies had gone.

A little more than a year later, the platform is trading at just under $84, a fall of nearly 80 per cent. Even for speculators used to ‘hodling’ that is a big drop.

What has caused the platform share price to fall so sharply since IPO and can be expected from its results?

Coinbase makes its money by taking a small cut of the cryptocurrencies traded on its platform.

The market has matured considerably since the platform’s launch in 2012 and it is now the biggest crypto platform in the US. It has benefited from the rising crypto prices which has prompted a big rise in transactions.

But now the crypto market is in a tailspin with the value of bitcoin dropping 50 per cent since its November peak and ethereum trading at around $2,400.

Neil Wilson, chief market analyst at Markets.com says Coinbase has always been ‘incredibly reliant’ on the price of bitcoin, which goes some way in explaining why Coinbase has suffered – the stock has dropped nearly 35 per cent in the past five days.

Crypto expert Glen Goodman adds the timing of Coinbase’s IPO is partly to blame.

‘Coinbase shares debuted on the market at the worst possible time for investors – right at the peak of 2021’s crypto mania. So they priced in a glittering future.

‘But as bitcoin’s price suffers the hangover after the party, trading volumes have come way down as many investors lose interest. This means less revenue for Coinbase and way less profit.’

This is likely only going to be exacerbated by growing concerns over inflation and the higher cost of borrowing as central banks hike interest rates.

The US Federal Reserve raised its rate by half a percentage point, its biggest rate hike in more than 20 years.

Wilson says the Fed’s decisions and the macroeconomic outlook ‘means the wheels are coming off the whole market’.

Others are more bullish on Coinbase’s prospects. Cathie Wood’s Ark Investments recently added another $7.2million to its investment, saying the price collapse is a buying opportunity.

Looking forward to its first quarter results it is likely Coinbase is bracing itself for a difficult set of results. 

It had already warned in the fourth quarter that it expects lower trading volumes and the number of monthly transacting users is likely to follow.

Investors will be looking to see whether the platform can grow revenue from its subscriptions and services to alleviate the volatile nature of the rest of this business. 

But this only accounted for 7 per cent of the Coinbase total revenue in 2021. 

While it was one of the first exchanges in the space that made it easy to buy and hold crypto, it is facing increasing competition from platforms that are more nimble and have lower fees.