Coinbase Stock Down 32% As Crypto’s Value Plunges $220 Billion

 

The Coinbase logo displayed on a phone screen and the representation of Bitcoin are displayed here ... Illustration photo taken in Krakow, Poland on April 15, 2021 (Photo by Jakub Porzycki / NurPhoto via Getty Images)

NurPhoto via Getty Images Cryptocurrencies offer mixed incentives for established companies in the financial services industry. The incumbents value the fees they charge players for trading crypto and the interest they charge for leveraging their risky stakes. At the same time, regulators require banks to know their customers (KYC) so that they don't launder criminals' money. Unfortunately, the most basic principle of cryptocurrencies is embedded in their name - the people who own it do so anonymously. Crypto is rising fast when people can borrow money to control more than their money can buy when the market price rises. Rising prices are fueling the urge to borrow money to control more crypto. When prices fall, the crypto exchanges require account holders to top up their accounts with cash - otherwise the accounts are automatically closed. What is more. Demand for crypto would fall if the government decides to penalize financial institutions that engage in crypto trading or impose disclosure costs. That market momentum doesn't help the growth potential of Coinbase, whose stock has lost 32% of its value since peaking on April 14th. Should you buy Coinbase at a cheaper price? I'd rather say yes if three issues affecting Coinbase could be resolved
  • Regulatory problems prevent it from working with the mainstream financial system
  • Hackers repeatedly steal it
  • Coinbase is too dependent on trading commissions

Crypto's sudden leap

According to the Wall Street Journal, Crypto's $ 220 billion market cap was wiped out in one hour on April 18. Bitcoin, for example, peaked at $ 64,829 on April 14 and had lost 24% of that value by April 23 - to $ 49,334. Undoubtedly, those who have been riding the Bitcoin pony since early 2020 are not interested in those little hiccups. After all, "its price more than tripled in 2020 and doubled by 2021 before slipping," according to the journal. An analyst, Michael Oliver of Momentum Structural Analysis, declared Bitcoin "broken" due to technical trend lines Will the Treasury Department accuse financial institutions of "using cryptocurrencies to launder money"? The Journal reported that the rumor appeared on Twitter, was reinforced by some media outlets, and did not elicit comment from a finance spokesman. Unsurprisingly, crypto volatility is fueled by emotion and thinly secured debt. The result of the drop in crypto prices cost traders $ 10.1 billion on April 17. More than 90% of the funds liquidated were due to heavily indebted bullish bets on Bitcoin. Binance, the world leader in crypto trading volume, accounted for roughly half of all crypto liquidations - many of which were automatic. That's because Binance and other exchanges "have individual investors prepay a relatively small amount of money to place an oversized bet," the Journal reported. If the price of Bitcoin falls, account holders will have to add more money to their accounts or the exchange will automatically liquidate their holdings. This recovers what Chris Zuehlke, global head of crypto trader Cumberland, calls "potential for a series of cascading liquidations". " Why not? On some futures contracts, Binance allows 125 to 1 leverage - meaning they can "only deposit 80 cents to amass the equivalent of $ 100 bitcoin". noted the journal.

Coinbase is falling from its post-IPO high

Coinbase, the largest U.S. crypto exchange I wrote about April 13th, has seen a nearly 32% decline in value since it opened on April 14th - its first day of trading - with a market cap of $ 85 billion Has reached its climax. In my view, there are two problems with crypto that need to be resolved and one with Coinbase's business model before I can own Coinbase.

The regulatory issues that keep crypto out of the mainstream

There is significant uncertainty about how governments will regulate crypto. In February, a report by Bank of America warned of its risks and the potential for market disruption from government action against privacy, according to CoinDesk. The report notes that crypto is challenging governments' ability to collect taxes and control capital flows in and out of their jurisdictions. Depending on how it is regulated, the US could prohibit all institutions and intermediaries from conducting crypto transactions or, according to CoinDesk, increase the requirements for reporting customer information and access to such exchanges. Private digital assets are specifically set up to circumvent banks' KYC requirements. In order not to inflict huge losses on crypto owners, governments could "replace private digital assets with publicly controlled ones," wrote CoinDesk. The Bank of America report concludes that given this high level of regulatory uncertainty, investors “should be careful with digital assets”.

The ease with which hackers steal it

In 2020, according to ZDNet, crypto worth billions was stolen in 122 attacks. In January 2021, those hacks amounted to $ 3.8 billion worth of filtered crypto. The good news is that the number of attacks in 2020 is down 8% from 133 in 2019. The 2020 attacks fell into three categories:
  • Ethereum apps. Decentralized apps running on the Ethereum platform had 47 attacks (January 2021 value: $ 437 million).
  • Cryptocurrency exchange had 28 attacks (worth $ 300 million in losses as of January 2021)
  • Blockchain wallets. It resulted in losses of $ 3 billion 27 attacks on blockchain wallets - averaging $ 112 million per wallet hacking event compared to around $ 10 million per attack on Ethereum apps or exchanges, according to ZDNet.
Read this New York article to learn how North Korea stole at least $ 1.75 billion worth of crypto, which is roughly 10% of its defense budget.

Coinbase's excessive reliance on trading commissions

86% of Coinbase's 2020 revenue came from trading commissions. In the first quarter of 2021, Coinbase charged a 0.46% transaction fee - that's 46 times higher than the fee charged by NASDAQ and NYSE. Crypto trading competitors like Gemini, Bitstamp, Kraken, Binance and others, MarketWatch said, could cut transaction fees to zero - which would hurt Coinbase's revenue. An analyst sees the risk of price pressure that offsets the chances of the stock rising. According to MarketWatch, Mizuho's analyst Dan Dolev wrote, "Over time, COIN fees could be pushed down by competing platforms as stocks like PayPal and Cash App primarily use crypto trading products as engagement tools. Dolev noted that a survey of several hundred Bitcoin traders found that 55% of them saw "low transaction fees" as the second value after "security" as the factors they use to choose between crypto trading app platforms. He also stressed that there is "significant overlap" between users of the Coinbase, PayPal and Square trading platforms. This makes me think that Coinbase must either lower its fees, offer customers a new, valuable service that competitors cannot simply copy, or lose a large part of its revenue. Source link

https://thedailytradingnews.com/coinbase-stock-down-32-as-cryptos-value-plunges-220-billion/

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