Coinbase, the symbol of hysteria around cryptocurrency

This is not very dangerous. Last February, US cryptocurrency exchange Coinbase wanted to hit hard. Like the biggest names in business, the startup featured a one-minute ad during the Super Bowl, the final of the domestic soccer tournament watched by more than 100 million viewers. She paid a small fortune – $ 16 million – the operation could have been a complete success. Original and clever, his site featured a QR code on a black background to be scanned with a smartphone: the curious, redirected to the company’s website, were promised $15 in “crypto”, provided they opened an account. Unfortunately, the site does not support the flow of visitors. And after he was over-questioned, he sank very quickly, which provoked a torrent of harsh comments on social networks.

And if that’s the only problem with Coinbase… But over the past few months, nothing has gone right! The only exchange platform listed in the crypto world, the startup is bearing the brunt of the erratic movements underway in the bitcoin, ether, tether and other markets. It was first praised that the young photo session is now at its worst, clarifying on its own the excesses, hopes and painful disappointments associated with cryptocurrencies.

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In the first quarter of 2022, the company recorded losses of 429 million euros, affected by a 36% decrease in turnover (to 1.16 billion dollars). Impacted more than other competitors (we’ll get back to this), San Francisco has seen its market share melt. With 7.5 million daily visits, fifteen times less than the number one global platform Binance, it left the top 5 global trading platforms for some time to drop to the fourteenth place. consequences? The measure, which priced at $350 during its initial public offering in April 2021, is now five times lower.

However, Coinbase is a figure in this sector, a pioneer that was created in 2012 by specific person Brian Armstrong. Very early on, this brilliant engineer realized the potential of Bitcoin, the first digital currency created at the end of 2008 by one (or more) anonymous developer (or more) with a rebellious spirit, and decided to stand out from a financial system considered corrupt after the mortgage crisis. From the beginning, the operation of this currency was based on a decentralized computer network independent of banks. Transactions were processed via a virtual record, called a blockchain, that was simultaneously shared by all participants. And the limited amount of bitcoins that were issued was making it a kind of safe haven.

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Advantages of this new kind of “money”? Confidentiality, security and speed according to the various promoters of Silicon Valley. Quickly, Armstrong came up with the idea of ​​opening this secret circle to as many people as possible. “It has created a reassuring and efficient interface, where all you need is a few clicks to buy or sell,” sums up Karl Toussaint du Wast, a media advocate for Bitcoin. With the price of cryptocurrencies soaring in the mid-2010s, the general public flocked to these products and the app exploded, and for a while, established itself as the most downloaded in the US App Store. With 43 million users in 2021, Armstrong, a charismatic figure with a shaven head, was introduced as the “Michael Jordan” of the crypto economy.

How then can the collapse of recent months be explained? First, Coinbase is a victim of the “crypto winter.” Since interest rates have risen, cryptocurrency values ​​have plummeted: the price of Bitcoin, in particular, has been divided by three since the fall. Since the platform is compensated with a commission on exchanges (by 1.5%), their turnover has decreased mechanically, affected by lower transaction amounts and fewer operations.

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Economist Philip Heerlin, author of Bitcoin: Understanding and Investing (Ed. Rolls). This reversal has reached the point where it has already claimed its first victims. terra ecosystem collapsed. The Celsius platform was forced to suspend withdrawals, trapping its customers… “This path is fundamentally not surprising, as Laurent Quignon, head of banking economics at BNP Paribas deals with. Cryptocurrencies have no intrinsic value and are not backed by high-quality assets.”

In this complex situation, Coinbase is also experiencing a particularly disadvantageous position in the market. First, make sure the quality of service is practical and comfortable, the company has chosen to locate a high price: while the competition is fierce and the atmosphere is tense, these high prices are now frightening the devotees. But above all, the company, now listed on the stock exchange, is seriously affected by individual exposure in a rather obscure sector.

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Since her arrival on Wall Street, she has been subjected to many mass actions that have been publicized that have tarnished her reputation. Some of them are related to incorrectly banned accounts (according to the owners), others are related to non-compliance with stock market rules or even unwise investment advice. Too bad publicity for Coinbase…Another issue, while distrust towards cryptocurrencies is growing, investors have made this stock market value an obvious target. The most aggressive? Jim Chanos, a star trader who specializes in short selling, is betting on low prices for companies deemed overpriced. “Bitcoin is pure speculation and Coinbase is built on the winds, and it has made a lot of very movable interventions. Its initial public offering has enriched its leaders. What, once again, is precipitating the downfall of the title.”

But icon Brian Armstrong also has his share of responsibility in this disaster. Perhaps the director was drunk due to the success, and was not able to control the development of his solid mass. “It certainly grew very fast,” the president admitted. Very confident (also?), the entrepreneur doubled down on small arrogant statements, promising that “Bitcoin will be digital gold” or “Coinbase will free the economy,” taking on a lot of risks. Exploding 50% of marketing costs, opening comfortable offices in New York, London or Tokyo … The president did not look at the expenses. In eighteen months, it quadrupled its workforce, to 6,000 employees. Before announcing the layoffs of more than 1,000 workers last June… Painful, yoyo.

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