Why Coinbase Global Plunged by 30.7% in May

What happened

Shares of Coinbase Global (COIN -9.66%) plunged by 30.7% in May, according to data provided by S&P Global Market Intelligence.

The cryptocurrency exchange platform has seen its shares lose 69% of their value year to date.

Image source: Getty images.

So what

Coinbase had reported a downbeat set of earnings for its fiscal 2022’s first quarter (1Q2022). Revenue fell by 35.2% year over year to $1.16 billion and the company booked an operating loss of $554.4 million, reversing last year’s operating income of $987.7 million. Net loss came up to $429.7 million versus net income of $301.9 million in the prior year. Free cash flow also swung from an inflow of $3.4 billion in 1Q2021 to an outflow of $840.4 million in 1Q2022. 

Coinbase’s growth is now in doubt as investors fret over the recent collapse of Terra’s Stablecoin, while sister cryptocurrency Luna plunged to close to zero. Terra was designed to be pegged to the U.S. dollar and to retain a value of $1 at all times. Early last month, the peg unwound and Luna, the cryptocurrency backing Terra, saw its value plunge. Administrators tried to revive the currencies by resetting the network but their moves could not stem the fall. Confidence has now been severely dented as numerous cryptocurrency investors lost massive amounts of money tied to Luna and Terra.

Now what

The company had warned investors of volatility in its financials as cryptocurrency is a nascent asset class that is prone to sharp and sudden price movements. Hence, quarterly financials may fluctuate greatly depending on the level of cryptocurrency adoption. An adverse event such as Terra/Luna sent a wave of fear cascading through the crypto community, resulting in lower trading volumes as investors nursed their losses.

Coinbase has reported a quarter-over-quarter dip in monthly transacting users (MTUs) from 11.4 million to 9.2 million, but this is still a more than 50% year-over-year rise from 6.1 million in 1Q2021. Traders are holding back for now as trading volumes have slid 43.5% quarter over quarter and 7.8% year over year.

The company, however, continues to boost its capabilities through the volatility. It added support for another 40 assets for custody and 27 for trading while also launching Coinbase Pay, which allows any crypto wallet to connect with fiat currencies. Coinbase is also working with Visa (V -1.12%) to enable payouts to Visa debit cards as part of its plan to expand its international reach. It’s also pausing hiring for now as it assesses market conditions and lays out its strategy for more sustainable growth in the future.