Coinbase suffers $1.1 billion revenue loss. Are they broke?

Last Updated on August 11, 2022 by aicrypto

San Francisco-based crypto exchange operator Coinbase has to report a loss again in Q2 2022. This time, revenue slumped by $1.1 billion to a modest $803 million.

The current crisis in the crypto industry is particularly affecting crypto exchange operators. Not long ago, they were among the stars in the crypto industry. The big crypto exchanges such as Binance, eToro, Kraken or Coinbase were able to set new records for turnover and earnings almost daily.

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A crypto exchange was like a license to print money. Revenues and profits without end.

But these good times are over for the time being. Now one loss warning follows the next. Every month and every quarter, new declines in revenue and finally the realization of losses have to be reported. One scare announcement follows the next.

Coinbase – the current figures

 In the annual report for the second quarter of 2022, Coinbase had to report a decline in revenue in the amount of 1.1 billion US dollars, which was now only 803 million US dollars.

It is already the second negative quarter in a row. An unusual situation for the young company, which is used to success. Shortly after the figures were published, Coinbase’s share price plummeted by 5%.

How does Coinbase interpret these figures?

Coinbase itself puts the figures into perspective. The majority was not due to a real loss of revenue, but was due to accounting regulations. They required that the values of cryptocurrencies on the books be decreased when they fell.

In the second quarter, 9 million users had conducted transactions on Coinbase’s crypto exchange. That represents a 200,000 drop from the first quarter. In the middle of last year, Coinbase could still report a monthly increase in users of about 200,000.

Hard times for Coinbase

These negative company numbers come at the worst possible time for Coinbase. On top of the hard times in the crypto industry itself, there are the specific negative reports related to Coinbase.

This includes the arrest of the former product manager for insider trading. As well as the still ongoing investigation by the Securities and Exchange Commission against Coinbase, with allegations of illegal listings.

This makes it difficult for Coinbase to regain the trust of its users when one bad news follows another.

Is there still hope?

The only positive was Coinbase‘s announcement that it had entered into a partnership with Blackrock, the world’s largest asset manager. This caused Coinbase’s share price to skyrocket.

Presumably, more crypto companies will follow this path and try to keep operating with the financial backing of major investors.

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Will the situation improve?

There are some indications that the end of the slump in the crypto industry has been reached. Bitcoin, for example, was able to increase its price to $24,000 in June 2022, an increase of about 55 percent.

Ethereum has more than doubled in value since its June 2022 low, an increase of 105 percent. And quite a few other cryptocurrencies have also performed positively in recent weeks. There is slight reason for hope.

Not all crypto companies will survive

Certainly, not all crypto companies will survive the crisis, but the ones that perish may never have had a good business idea. They were just burning money. Maybe it’s a good thing they’re going away.

Other companies will emerge from the crisis stronger, with new financial investors and better equity. The equity ratio in particular tends to zero for many cryptocurrencies.

Conclusion on the crisis in the crypto industry

The fact that during the current crisis in the crypto industry, so many crypto companies are about to face existential problems is very convenient for crypto opponents. These believe that crypto companies do not create value and have no substance.

There is indeed some truth to this accusation. Many of the startups in the crypto industry consist of a few “guys” who merely come along with an idea and are then showered with funds in the millions or even billions by investors without the “business idea” being carefully examined.

And then there are such criminals as Do Kwon, who builds up an entire crypto ecosystem and collects billions just to be able to put the money in his own pocket.

For years, people have thrown money at him with their hands full, and now the same people are calling for justice and the law.

Crypto industry needs regulations

With all the great promises that the future of the financial world lies in decentralized finance based on self-regulation and independence, it should not be forgotten that unregulated environments are the favorite environment of “bad guys”. And not everyone wants only the best for you and your money.

The crypto industry also needs regulations and rules that protect customers and investors from unnecessary risks and dubious providers. The lawless Wild West mentality always leads to chaos and disaster in the end.