Coinbase (and crypto’s) fate hangs by a string: A Deep Dive

Key Takeaways

• Coinbase is down 86% from its $100 billion IPO valuation 
• It has significantly underperformed Bitcoin, Ethereum, the Nasdaq and almost every benchmark since
• This week it was sued by the SEC for violating securities law, its stock down another 27% from last week
• Coinbase went public under the SEC’s watch in April 2021, and the exchange sued the regulator two months ago for not responding to pleas for regulatory clarity 
• Our Head of Research, Dan Ashmore, analyses the stock’s performance to date and writes about why the fate of the entire company is at stake
• The court case represents a huge day for crypto, Ashmore writes, and a much more intriguing case than the lawsuit Binance was charged with this week

Coinbase, the world’s largest publicly traded crypto company, closed last week trading at a price of $64.55. Then, the SEC came knocking. 

The financial regulator sued Coinbase Tuesday, alleging it failed to register as a broker, national securities exchange or clearing agency, and is hence violating US securities law. Shares opened the next morning at $47.10, a tumble of 27% compared to that closing price the prior Friday (they had fallen 7.5% on Monday after Binance was sued). 

Following a slight rebound, as of Thursday morning, Coinbase is trading at $53.26, its market cap $12.5 billion. That represents a painful 86% decline from its IPO in April 2021, when the company floated at a valuation of nearly $100 billion, or $381 per share. Ouch.

In a lot of ways, the demise of Coinbase sums up the entire cryptocurrency industry over this period. Since the top in November 2021, the space has been absolutely ravaged. A transition to tight monetary policy from central banks around the world, in response to rampant inflation, has pulled the rug out from under the industry (to use the crypto-native expression).

Despite allures of grandeur from certain investors during the pandemic (possibly dizzy from the explosive gains realised across the board as the Robinhood and cryptocurrency boom raged), Bitcoin and every other cryptocurrency trade like a high risk assets (at least for now). 

Bitcoin may present as an intriguing discussion with regard to whether it ever can decouple, or take that crown of an inflation hedge. However, the reality is that as of 2023, everything in the cryptocurrency space is highly correlated…