What happened

Shares of cryptocurrency exchange company Coinbase Global (COIN 1.65%) were crushed on Wednesday as problems from now-failed exchange FTX continue to trickle down through the industry. Today, another major crypto player announced that it's strained to the max, making investors fearful that something could eventually happen to Coinbase as well. As of 10:30 a.m. ET, Coinbase stock was down almost 10%.

So what

According to official social media posts today, users of Genesis' platform are submitting more withdrawal requests than what the company has in liquidity. For context, FTX was the world's third-largest cryptocurrency exchange, but it filed for Chapter 11 bankruptcy protection last week. And this has understandably caused investors to start pulling resources out of centralized entities like Genesis.

To be clear, Genesis said that users can still trade on its platform. It's only pausing loan redemptions and new loan originations. On one hand, this sounds like a minor inconvenience. But every crypto firm that's gone down in 2022 began its descent by downplaying the extent of the damage. 

I'm not saying that's the case for Genesis as well; I'm saying it's on investors' minds. The prevailing notion is that things are broadly worsening in the crypto space, motivating investors to sell their coins and tokens, which negatively impacts their values. And this is also sending Coinbase stock down.

Now what

If I were a Coinbase shareholder, I would be watching how the shakeout in the cryptocurrency space is affecting the market capitalization of USD Coin (USDC 0.01%). The value of this coin is supposed to always be $1, backed by real dollars in the bank.

Coinbase partly owns USD Coin. And as users adopt this stablecoin, its market cap grows. By contrast, if people choose to cash back out of USD Coin, the market cap goes down, even though the price stays fixed at $1.

About 18% of Coinbase's third-quarter revenue came from interest earned on its cash, of which the majority was from the assets backing USD Coin. Interest income could trend even higher for the company over the coming year as interest rates go up. However, if people start cashing out of USD Coin -- avoiding the crypto space altogether -- that would have a tangible negative impact on Coinbase's revenue, even if trading activity on the platform remained robust.

For what it's worth, USD Coin's market cap is roughly flat over the past month, according to CoinMarketCap. This perhaps suggests investors believe it's a safe haven in the crypto space.

For that matter, the events of this year certainly offer an opportunity for Coinbase. It's possible the company could perform well, giving users confidence that it's a superior exchange. But investors will need to wait a few more quarters before drawing that conclusion.