Coinbase stock continues to slide after earnings report


The largest cryptocurrency exchange in the United States said it was bleeding users, reflecting the continued destruction of the crypto market and investor unease with risky assets.

Coinbase global Inc.

PIECE OF MONEY -12.60%

said on Tuesday it lost hundreds of millions of dollars in the first quarter, sending the stock plummeting in after-hours trading. Following the aftermarket report, shares were trading around $61, a far cry from the $381 where the stock began trading when it went public just over a year ago.

“Nasdaq is down, Bitcoin is down. And that led to fewer and fewer dollars being invested in crypto,” said Alesia Haas, chief financial officer of Coinbase. Haas said that while trading volumes were lower than expected, she believes Coinbase is in a strong position going forward as it invests in its future, including diversifying into other products such as non-fungible tokens or NFTs.

Investors increasingly believe that financial markets are at a turning point and as a result have retreated from some of the more speculative investments. The stock market fell to record highs as the Federal Reserve began to reverse its easy money policies, raising interest rates and unwinding its portfolio of assets. The central bank raised interest rates by half a percentage point last week, the biggest hike in more than two decades, causing a multi-day rout.

As high-risk assets, cryptocurrencies have fallen dramatically. Bitcoin, which slid for the sixth straight day on Tuesday, is now down 54% from its November peak. So far this year it has lost a third of its value, while Ethereum is down 37% in 2022. Sales of non-fungible tokens have stagnated.

“When [Coinbase] came out, it was one of the hottest growth stocks, innovative companies,” said Matthew Tuttle, managing director and chief investment officer at Tuttle Capital Management. “As soon as the Fed pivoted in November, that was the death knell.” Mr. Tuttle said he does not plan to buy cryptocurrencies or crypto stocks in the short term.

Investors continued their volatile trading on Tuesday with a turbulent session in the stock market. The Dow Jones Industrial Average ended the day down 0.3% after toggling between gains and losses, while the S&P 500 rose 0.2% and the Nasdaq Composite climbed 1%. On Monday, all three indexes fell 2% or more.

Coinbase, under co-founder and chief executive Brian Armstrong, posted a first-quarter loss of $429.7 million, or $1.98 per share, on revenue of $1.2 billion on Tuesday. That compares with earnings of $387.7 million, or $3.05 per share, on revenue of $1.8 billion a year earlier. Analysts had expected a loss of 1 cent per share on revenue of $1.5 billion, according to FactSet.

The majority of the exchange’s revenue comes from transaction fees, which fell significantly in the first three months of the year. The number of users transacting monthly has also declined, and Coinbase said in its shareholder letter that it expects user numbers and transaction volumes to decline again in the second quarter. Retail and individual investor trading volumes fell by more than half from the previous quarter.

WSJ’s Dion Rabouin examines crypto and its future. Photo composition: Elizabeth Smelov

Coinbase said its outlook for 2022 remains largely unchanged despite a bumpy first quarter. The stock, down 71% so far this year, fell 13% on Tuesday ahead of the company’s quarterly earnings release.

Other crypto stocks saw steep declines. Silvergate Capital Corp.

has fallen 42% so far this year, Marathon Digital Holdings Inc.

slipped 64%, Riot Blockchain Inc.

slipped 66% and TeraWulf Inc.,

a bitcoin mining company, is down 80%.

The sharp drop in cryptocurrencies is not entirely unexpected. But many people in the cryptocurrency industry argued that this time would be different due to the expansion of the crypto market and wider adoption by Wall Street. Several bitcoin bulls have praised its value as an inflation hedge. That remains to be seen.

“Essentially, bitcoin is a non-yielding asset at a time when real rates are rising. It’s a challenging environment,” said Steve Sosnick, chief strategist at Interactive Brokers. Sosnick notes that bitcoin is still trading around 300% higher than at the end of 2019.

The third-largest stablecoin, TerraUSD, expected to hold its value at $1, fell as low as 69 cents on Monday, prompting a flood of investors to sell their holdings. Treasury Secretary Janet Yellen on Tuesday reiterated calls for Congress to allow regulation of stablecoins following the TerraUSD price crash.

“As things turn sour and the market outlook gets a little heavier, unfortunately, crypto is going to be one of the first assets to drop,” said Mike Boutros, strategist at DailyFX. Boutros said he thinks the market could go down even further and does not recommend investors buy crypto assets.

This year’s rout also punished large-cap tech stocks. netflix Inc.,

Facebook’s parent companies, Meta Platforms Inc. and Amazon.com Inc., are all down at least 35% this year.

For now, investors are awaiting inflation data due out on Wednesday. If the report suggests inflation has peaked, analysts say that could potentially influence the Fed’s aggressive hike plan.

Write to Corrie Driebusch at corrie.driebusch@wsj.com

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