The largest U.S. cryptocurrency exchange said it was losing users, reflecting continued disruption in the cryptocurrency market and investor nervousness about risky assets.
Coinbase Global Corp. COIN -26.13% said Tuesday that it lost hundreds of millions of dollars in the first quarter, causing shares to fall in after-hours trading. The stock traded around $61 after the after-hours report, a far cry from $381 when the shares were reported more than a year ago.
“The Nasdaq fell, Bitcoin fell. That led to fewer and fewer dollars being put into cryptocurrencies,” said Alesia Haas, CFO at Coinbase. Miss. Despite the lower than expected trading volumes, Haas said she sees Coinbase in a strong position for future investments, including diversifying into other products, such as non-fungible tokens or NFTs.
Investors increasingly believe that financial markets are at a turning point, so they have abandoned some of their more speculative investments. Stocks pulled back from all-time highs as the Federal Reserve began to scale back its accommodative monetary policy, raising interest rates and shrinking its portfolio. The central bank raised interest rates by half a percentage point last week, the biggest increase in more than two decades, leading to days of declines.
As a risky asset, cryptocurrencies have fallen sharply. Bitcoin, which fell for the sixth consecutive day on Tuesday, is now down 54 percent from its November high. It has lost a third of its value so far this year, while Ethereum is down 37% by 2022. Sales of non-fungible tokens were flat.
“When [Coinbase] came out, it was one of the hottest growth stocks, innovative companies,” said Matthew Tuttle, CEO and chief investment officer at Tuttle Capital Management. “The Fed jumped in November, and that was the fatal blow.” Tuttle said he has no immediate plans to buy cryptocurrencies or crypto stocks.
Investors continued to trade in choppy trading on Tuesday, with a choppy trading session. The Dow Jones Industrial Average closed down 0.3% after bouncing between gains and losses, while the S&P 500 gained 0.2% and the Nasdaq Composite gained 1%. All three indexes fell 2% or more on Monday.
Coinbase, led by co-founder and CEO Brian Armstrong, reported a first-quarter loss of $429.7 million, or $1.98 a share, on revenue of $1.2 billion on Tuesday. That compares with $387.7 million, or $3.05 per share, on sales of $1.8 billion a year ago. Analysts had forecast a loss of 1 cent per share on sales of $1.5 billion, according to FactSet.
The exchange, which generates most of its revenue from transaction fees, fell sharply in the first three months of the year. The number of users transacting monthly has also declined, and Coinbase said in its shareholder letter that it expects another drop in user numbers and transaction volumes in the second quarter. Deal volume by private investors, or private investors, fell by more than half compared to the previous quarter.
Coinbase said its outlook for 2022 remained largely unchanged despite a bumpy first quarter. The stock has fallen 71% so far this year, and fell 13% on Tuesday ahead of the company’s earnings report.
Other cryptocurrency stocks fell sharply. Silvergate Capital Inc. is down 42 percent so far this year, Marathon Digital Holdings Inc. is down 64 percent, Riot Blockchain Inc. is down 66 percent and bitcoin miner TeraWulf Inc. is down 80 percent.
The sharp fall in the cryptocurrency was not entirely unexpected. But many in the cryptocurrency industry claim that this time will be different due to the expansion of the cryptocurrency market and wider acceptance on Wall Street. Several Bitcoin bulls have praised its value as an inflation hedge. It remains to be seen.
“Bitcoin is largely a non-profit asset at a time when real rates are rising. It’s a tough environment,” said Steve Sosnick, chief strategist at Interactive Brokers. Mr. Sosnick noted that Bitcoin is still trading around 300% higher than it was at the end of 2019.
The price of the third-largest stablecoin, TerraUSD, is expected to remain at $1 after falling to 69 cents on Monday, prompting a flood of investors to sell their holdings. U.S. Treasury Secretary Janet Yellen renewed her call on Tuesday for Congress to approve regulation of stablecoins following the TerraUSD price drop.
“Unfortunately, if something goes wrong and the market outlook gets worse, cryptocurrencies will be one of the first assets to fall,” said DailyFX strategist Mike Boutros. Mr. Boutros said he thinks the market could fall further and doesn’t recommend Investors buy crypto assets.
This year’s failure also weighed on the big tech stocks. Netflix Inc., Facebook parent Meta Platforms Inc. and Amazon.com Inc. are all down at least 35% this year.
For now, investors are awaiting Wednesday’s inflation data. If the report shows inflation has peaked, analysts say that could affect the Fed’s aggressive rate hike plans.
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