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Crypto Exchange Fortune Remains Tied to Volatile Bitcoin

Coinbase caused quite a stir in February with its Super Bowl TV commercial. The commercial, titled “Less Talk, More Bitcoin,” featured a bouncing QR code that offered new users $15 worth of bitcoin for free.

The US-listed crypto exchange itself could use less talking and more bitcoin trading. Rising interest rates have caused investors to move away from risky assets. A smaller user base and trading volume resulted in a 27 percent drop in revenue in the first quarter, pushing the company into the red. Coinbase warned that trading volume will continue to decline in the current quarter.

Bad enough, but then Coinbase started whining. An attempt by its founder and CEO, Brian Armstrong, to clarify a new SEC disclosure requirement only further alarmed the market. Coinbase’s stock price collapsed by more than a fifth on Wednesday. Its market valuation — which was more than $76 billion in November — has shrunk to $12.5 billion.

In a filing, Coinbase indicated that in the event of bankruptcy, all of the crypto assets in its custody account — worth $256 billion at the end of March — could be subject to bankruptcy proceedings. Since its users can be considered unsecured creditors, in the worst case, they could lose all their crypto assets parked at Coinbase.

This update follows new guidance from the SEC, which requires crypto exchanges to treat all users’ cryptocurrency they hold as liabilities on their balance sheets.

With $6.1 billion in cash and cash equivalents, Coinbase appears to be brimming with cash. Still, Armstrong’s claim on twitter that the exchange had “no risk of bankruptcy” only highlighted a major weakness of Coinbase’s business. While bank accounts in the US come with deposit insurance offered by the Federal Deposit Insurance Corporation, crypto exchanges do not offer the same safety net.

Coinbase’s income is highly dependent on trading fees. Efforts to diversify revenue streams will take time. A new marketplace for non-fungible tokens is emerging just as that market is also slowing. So Coinbase’s fortunes will continue to whirl around with volatile cryptocurrencies.

Source: Crypto News Austria

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