Coinbase’s inventory and bonds have been knocked by the collapse of FTX, which has sparked renewed issues in regards to the outlook for the US-listed cryptocurrency buying and selling venue.
Over the previous month, Coinbase’s bonds maturing in 2028 have tumbled by a few tenth in worth, with buyers demanding an elevated 14 per cent yield to buy the debt. The bonds at the moment are priced at 59 cents on the greenback, a giant low cost in contrast with 93 cents at first of 2022.
“Given where the debt is trading, it would imply distressed valuations,” stated John McClain, portfolio supervisor at Brandywine Global Investment Management, which owns Coinbase bonds.
The failure of Sam Bankman-Fried’s $32bn crypto trade has additionally rattled Coinbase’s fairness valuation, with its Nasdaq-listed shares plummeting by a few fifth over the previous 4 weeks to alter palms at slightly below $48 apiece, after a small uptick on Friday. Coinbase’s inventory, which traded at virtually $369 on the top of the crypto bull run final November, is down 81 per cent for the yr thus far.
Coinbase’s direct publicity to FTX is small — restricted to only $15mn on deposit with the Bahamas-based trade, in line with the corporate, however the sharp falls spotlight rising scepticism about the way forward for the crypto trade.
Moody’s Investors Service this week referred to as FTX’s collapse a “credit negative” for Coinbase, saying its “implosion” would “radically transform the cryptoecosystem, further shaking trust and raising doubts around [the industry’s] ongoing prospects”.
The “shockwaves” created by FTX’s chapter final month will hit Coinbase’s consumer engagement and buying and selling volumes, Moody’s predicted in its report on Tuesday, threatening to weaken the corporate’s profitability even additional.
A spokesperson for the trade stated Coinbase is in a “strong position”, including it has no “meaningful exposure” to current occasions.
Coinbase is very depending on revenues from buying and selling, which have shrivelled as the costs of crypto tokens have slumped from an all-time excessive a yr in the past. The San Francisco firm in June introduced plans to chop a fifth of its then-workforce, amounting to greater than 1,000 folks. In the third quarter Coinbase posted a lack of $545mn, in contrast with a web revenue of $406mn a yr earlier.
Prices of well-liked cash slid even additional after FTX’s speedy descent in November, with bitcoin tumbling to ranges final seen in December 2020. Industry buying and selling volumes additionally remained muted, in line with knowledge from The Block Crypto.
Coinbase’s present bond costs replicate “an apathy and a lack of appetite to own anything crypto related as a fixed-income investor”, stated McClain at Brandywine. Shares in different crypto-focused teams like bitcoin investor MicroStrategy and funding agency Galaxy Digital have additionally fallen sharply in current weeks.
“I think there’s a lot of headline risk with Coinbase and with asset managers like myself, that say ‘if this thing goes wrong, I really don’t want to have my name associated with lending to Coinbase’,” McClain added.
However, with a money pile of roughly $5bn as of September 30, the group’s “healthy liquidity should help it to weather the storm despite its recent weak financial results”, stated Fadi Massih, vice-president at Moody’s monetary establishments group.
“They do have the ability to weather the storm,” McClain concurred. “We think there are reasons to be interested in the debt,” he stated.
“Now what we need to see from them, and what we’ve seen inklings of, is the ability to scale down their cost structure aggressively to match the new reality of where their business is.”
Coinbase “should be buying back every single bond that they possibly can”, McClain stated, “given their balance sheet position, given the fact that leverage has decimated their competitors.”
“We believe [Coinbase] has a very strong cash position and may even capitalise on the FTX bankruptcy upheaval over the long term,” Richard Repetto at Piper Sandler wrote in a analysis notice on Friday.
“Still, we believe a more aggressive headcount reduction is a prudent step in managing expenses and sustaining shareholder value in a potential extended ‘crypto winter’ that could result,” he added.
Moody’s added that Coinbase would profit from being a publicly listed US firm, “with a transparent organisation structure and governance framework”. In distinction, lots of Coinbase’s offshore rivals have opaque buildings and are racing to offer extra transparency.
FTX’s collapse has left a “market share void”, Moody’s stated. In the absence of contemporary enthusiasm for crypto, that gap “will prove difficult to fill”, it added.
