Coinbase Global (COIN 7.10%), one of the world's largest cryptocurrency exchanges, went public through a direct listing on April 21, 2021, with a reference price of $250 per share. No shares were actually sold at that price, and its stock started trading at $381. For $10,000, you could have bought 26 shares of Coinbase on that very first trade.

Coinbase's stock surged to $429.54 later that day, which would have temporarily boosted the value of your investment to nearly $11,300. Unfortunately, that also turned out to be Coinbase's all-time high.

As of this writing, Coinbase's stock trades at about $45 -- so your $10,000 investment would be worth less than $1,200 today. Let's see why Coinbase initially attracted a stampede of bulls before getting devoured by the bears.

Gold tokens with the Bitcoin symbol on a shiny circuit board.

Image source: Getty Images.

What happened to Coinbase?

On the day Coinbase went public, a single Bitcoin was worth nearly $52,000. Ethereum traded at about $2,400, and the market was flooded with smaller altcoins. Today, Bitcoin is worth less than $16,000, Ethereum is worth about $1,100, and many of those smaller tokens simply disappeared.

The cryptocurrency market crashed for three simple reasons: Rising interest rates drove investors away from riskier investments, regulators turned up the heat on cryptocurrencies across many countries, and the failures of several high-profile tokens and exchanges drove away potential investors.

Coinbase generates most of its revenue by charging transaction fees for crypto trades on its platform. Therefore, its business would flourish as long as crypto prices were soaring, but would quickly wither once those prices plummeted.

Coinbase's initial growth rates were jaw-dropping. In 2021, its trading volume surged 766% to $1.67 trillion, its number of monthly transacting users (MTUs) increased 307% to 11.4 million, and the total assets on its platform jumped 209% to $278 billion. Its full-year revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) skyrocketed 545% and 676%, respectively.

But in the first nine months of 2022, its trading volume declined 39% year over year to $685 billion, its revenue dropped 48%, and its adjusted EBITDA turned negative -- even after it laid off nearly a fifth of its workforce earlier this year. Its MTUs shrank sequentially to 8.5 million at the end of the third quarter, while its total platform assets fell 60% to $101 billion.

Back in June, CEO Brian Armstrong told Coinbase's employees and investors to brace for a "crypto winter" that could last for an "extended period" of time. Unfortunately, recent estimates suggest that a "crypto ice age" could still be possible: Analysts expect its revenue to decline 59% to $3.18 billion this year with a negative adjusted EBITDA of $429 million.

Could Coinbase stage a comeback next year?

With an enterprise value of $8.1 billion, Coinbase's stock might appear cheap at just two times next year's sales. However, I believe its stock won't command a higher valuation until the cryptocurrency market recovers -- and there's no guarantee that recovery will actually happen. Rising interest rates will continue to drive investors away from cryptocurrencies, and the recent collapse of FTX (one of Coinbase's top competitors) will cause regulators to more closely scrutinize cryptocurrency exchanges, while smaller tokens will likely continue to fail and tarnish the industry's reputation. 

Coinbase also faces intense competition from better-diversified rivals like Robinhood Markets, which offers commission-free crypto trades along with its stock and option trades; and Block's Cash App, which offers Bitcoin purchases with its other digital payment services. Unlike Coinbase, which remains an all-in play on the cryptocurrency market, both of those rivals can afford to offset their slower crypto trades by expanding their other fintech services.

I'm not too optimistic about the crypto market recovering in 2023, so I fully expect Coinbase's stock to languish or decline over the next few quarters. Investors who want some long-term exposure to the crypto market are also probably better off directly buying those cryptocurrencies instead of investing in a capital-intensive exchange like Coinbase.