Coinbase Global Stock is a Falling Meat Cleaver

• 75% of investors have lost money in bitcoin as the crypto industry loses (-$2 trillion) in market cap since its high of over $68,000 in November 2021
• Coinbase is directly coupled with bitcoin prices
• The FTX fallout and regulatory scrutiny continue to be a risk factor
• Tax loss selling dropped shares to new all-time lows
• Coinbase shares are down (-84%) YTD with a 20% short interest

Cryptocurrency platform and exchange Coinbase Global (NASDAQ:COIN) stock has fallen alongside the crypto market and the price of bitcoin. However, things worsened after the FTX disaster as it hit new all-time lows of $40.15 on Dec. 9, 2022. The year-end tax loss selling is underway as investors reconsider the merits of cryptocurrency.

Coinbase has stated it has no exposure to FTX or its token FTT since it can’t be traded on the platform. However, indirect exposure is another story. The company has seen most of its metrics slide except for subscription and services, in which it actually raised guidance to over $700 million from $600 million for the fiscal full-year 2022.

Bitcoin Dispels Believers

Bitcoin collapsed from a high of $69,000 to on Nov. 8, 2021, to a low of $15,480 on Nov. 21, 2022. The cryptocurrency has no intrinsic value but rather moves on supply and demand stemming from news, rumors, speculation, regulatory actions, and overall sentiment.

It was once perceived to have utility as a store of value stemming from the Cyprus banking crisis of 2013, where citizens transferred their bank savings into bitcoin to avoid the government bailout of its banks by seizing its citizen’s bank deposits. That was then, this is now. Bitcoin has proven not to be a store of value, a stable currency for purchasing goods and services, a hedge against inflation, interest rates, or a falling stock market.

The crypto industry has lost over $2 trillion in the last year alone in a global pump-and-dump game of musical chairs, with 75% of bitcoin investors losing money. Companies like MicroStrategy Incorporated (NASDAQ:MSTR) that invested their cash in bitcoin have seen their stock plummet from a high of $1,315 in February 2021 to a low of $134.09 just 15 months later.

Tesla (NASDAQ:TSLA) was able to dump 75% of its $1.5 billion stake in bitcoin to suffer just a (-$170 million) loss, according to estimates. Bitcoin miners like Marathon Digital Holdings (NASDAQ:MARA) and Riot Blockchain (NASDAQ:RIOT) shares have fallen (-84%) and (-81%) year-to-date (YTD). Block (NYSE:SQ) stock seems to have shaken off its exposure to crypto trading as it rebounds off its lows.

FTX Scandal Contagion

The world’s third largest crypto exchange in 2021 was the FTX Exchange, which specialized in derivatives and leveraged products. FTX was launched in 2019 by Sam Bankman-Fried. FTX is short for the Futures exchange. FTX had a bank run on its FTT token that caused a $5 billion withdrawal on Nov. 6 amid fraud allegations with Alameda, which triggered a liquidity crisis that snowballed out of control.

It went from a $32 billion valuation to bankruptcy in a matter of days. It was discovered that Alameda Research was a sister firm with connections to 150 firms in a Nov. 11, 2022, chapter 11 bankruptcy filing in addition to over 1 million creditors.

Allegations of fraud, mismanagement, and sheer lack of corporate controls rippled through the crypto world as the Financial Times reported FTX as having $9 billion in liabilities and only $900 million in marketable assets.

This has triggered bankruptcies and speculation of bankruptcies across the board with a domino effect. From the implosion of Three Arrows Capital to crypto firms, Voyager, Celsius, and BlockFi, all filed chapter 11 bankruptcy stemming from the liquidity crisis.

Headlines are being made daily of other crypto firms facing liquidity issues stemming from the FTX fallout leading to speculation about Coinbase’s exposure, which the firm denied. While Robinhood Markets (NASDAQ:HOOD) claims it has no exposure to FTX, Sam Bankman-Fried has a 7.6% stake in Robinhood. The contagion fears continue to ripple through the industry and stocks of companies related to it.

The Harder They Fall

Coinbase released its fiscal third-quarter 2022 results for the quarter ending September 2022. The company reported earnings per share (EPS) loss of (-$2.43) versus (-$1.46) consensus analyst estimates, a (-$0.96) miss. Revenues fell (-55%) year-over-year (YoY) to $590.34 million, falling short of $641.88 million consensus analyst estimates. Monthly transacting users (MTUs) fell (-16.4%) YoY to 8.5 million. Trading volume fell (51%) to $159 billion.

CEO Brian Armstrong commented in its conference call, “We’ve been through four crypto cycles in the last ten years at Coinbase. And it’s funny; I enjoyed the down cycles a little more. In up cycles, there’s tons of scaling effort that has to happen, and a lot of people rush into crypto for sometimes the wrong reasons. In the down markets, you get to focus on building, and everyone’s there who’s a true believer and a true builder, and that’s no different in this case. There’s a ton of innovation happening.”

Tepid Forecast

Coinbase provided its forecast for the full-year 2022 expecting average MTUs to be below 9 million and average transaction per user to be around $20. It raises its subscription and services revenues to over $700 million, up from $600 million. It remains cautiously optimistic that it will operate within the $500 million adjusted EBITDA loss guardrail.

For the fiscal year 2023, the company expects pressure on transaction revenues to persist. It will continue to manage expenses and cut costs. It may evolve its business metrics disclosures to better align with business performance, which can include changes and deletions of certain metrics.

Coinbase Global Stock Chart

A Falling Meat Cleaver

The adage, “Don’t catch falling knives,” is an understatement as it pertains to shares of COIN. Instead of a falling knife, the pattern and magnitude of the collapse from a high of $429.54 resembles that of a falling meat cleaver as each rally gets chopped at the knees back down to lower lows or back-to-back bear flags.

The weekly Bollinger Bands were in a compression phase that appears to be expanding again as shares fell to a new all-time low of $40.15 on Dec. 9, 2022, as investors partake in tax-loss selling. The weekly stochastic continues to plummet, sinking to the 10-band. Pullback supports sit at levels not seen yet at $32.64, $25.42, $20.61, $15.26, $10.45, and $5.10.

Original Post