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Why Coinbase Stock Was Plunging by Over 43% This Week

By Eric Volkman - May 12, 2022 at 10:17PM

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It's a perfect storm of negative factors for the suddenly struggling cryptocurrency exchange operator.

What happened

Like the coins and tokens it specializes in, shares of top crypto exchange operator Coinbase (COIN 16.02%) were really taking it on the chin this week. As of Thursday's market close, according to S&P Global Market Intelligence, the stock was down nearly 44% week to date.

So what

No one is hot on anything related to cryptocurrencies just now.

There's a perfect storm of factors at work behind this. Global economic uncertainty and the war in Ukraine are driving people toward investments seen to be safer. Exacerbating this, the Federal Reserve's recent inflation-battling interest rate has made debt securities more attractive while at the same time making loans more expensive for businesses who need them.

Concerned person in a dark room looking at a tablet screen.

Image source: Getty Images.

Yet Coinbase isn't exactly lifting itself above this fray. On Tuesday, the company published its first-quarter earnings, revealing a deep and (generally, by analysts) unexpected net loss. It also fell well short of revenue projections.

In divulging its earnings, Coinbase also unveiled new language in its latest 10-Q filing with the Securities and Exchange Commission (SEC). There was speculation in the media that this could be interpreted as customer holdings potentially being considered property of Coinbase in the case the company went bankrupt.

Now what

To its credit, Coinbase quickly went into damage control mode. In a Tweet thread, co-founder and CEO Brian Armstrong wrote that the disclosure was due to a new SEC requirement, and it was "unlikely" that client holdings would be considered the company's property in the event of a bankruptcy.

He added, "For our retail customers, we're taking further steps to update our user terms such that we offer [strong legal] protections to those customers in a black swan event." He also pointed out that his company offers a self-custodial crypto wallet solution, Coinbase Wallet, that should keep a client's assets in his or her possession.

So it was a week of headaches for Coinbase. Controversies and fundamentals aside, its fortunes will likely continue to move more or less in concert with the broader cryptocurrency space.

 

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