Coinbase Shares Drop 10% on Downgrade

Ticker Symbol: COIN, XBT

Shares of cryptocurrency exchange and trading firm Coinbase Global were down over 10% this morning after the company was downgraded from a neutral to a sell-by analysts at investment bank Goldman Sachs. The price of bitcoin, the main underlying cryptocurrency traded on Coinbase’s platforms, was also lower by close to 3% to $20,600.

Coinbase shares are down over 75% on a year-to-date basis after today’s move. The shares last exchanged hands at $56, just $5 above the all-time low that was hit on June 16^th. The shares have cratered by a whopping 84% from their record closing high of $357.39 on November 9^th, 2021. Bitcoin, meanwhile, is down 69.5% relative to the U.S. dollar from its’ high of $67,734 hit on the same day. Bitcoin is also down roughly 55% on a year-to-date basis.

The “crypto winter”, as it has been labeled in capital markets, has seen trading volumes fall precipitously as currencies have declined. Retail investors and traders, who were very bullish on the asset class when the Federal Reserve started its quantitative easing cycle during the pandemic, have turned sour on the space in recent months. Stimulus checks from the U.S. government also buoyed investor demand in 2021 as many new participants to trading ploughed their checks straight into cryptocurrencies and other speculative assets at the height of the bubble.

Retail traders are also the main revenue generator for Coinbase after the company became the face of the boom in digital currencies with its’ aggressive marketing and sports sponsorship deals. Coinbase’s initial public offering in April of last year at $250 per share was also over-subscribed with oversized participation from the retail trading community. At the time, the offering was seen as a landmark moment in the development of cryptocurrencies and offered legitimacy to the nascent asset class.

Coinbase also announced earlier this month that it will be cutting 18% of its’ staff amidst a slowdown in revenue and increased competition from other exchanges and trading avenues. Binance, another retail trading avenue, and direct competitor announced earlier in June that it will offer zero-fee trading for bitcoin and that it will move towards removing fees on other tokens in the future.

Despite the moves to lighten its’ overheads, the company still needs to compensate its’ employees handsomely or face attrition amongst a fierce fight for talent retention in the financial technology industry. The company, at the end of its’ first quarter, had $1.3 billion in crypto assets that could see a substantial impairment given the sharp drop in digital assets.

Despite the sell rating from Goldman, however, other research houses remain relatively optimistic about the company. Coinbase has 20 buy ratings, 6 holds and 5 sells from the analyst community, with an average price target of $117 a share, roughly 100% over the current market price of the shares.

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