Put an arm around a Coinbase investor today. CEO and founder Brian Armstrong has announced that he is selling 2% of his stake, which amounts to another blow to the embattled cryptocurrency exchange.
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Coinbase’s IPO was a fertile time for the cryptocurrency
Coinbase, which is the second largest cryptocurrency exchange in the world, was the guinea pig for cryptocurrencies. The company avoided the traditional route – the IPO – and instead sought a direct listing, when its shares began floating on the Nasdaq stock exchange in April 2021. But it wasn’t just the listing method that was somewhat new. ; it was the fact that it was going public in the first place. It represented cryptocurrency taking its place at the big table. No cryptocurrency company had ever gone public before, and this came at a time when every coin under the sun was generating exorbitant returns for investors. It seems like a long time now. Bitcoin opened at $59,000 that morning. Jerome Powell’s printer was on fire. Boomers were asking their kids how to buy something called Dogecoin. Coinbase went public that morning and closed its first day of trading at $328 a share. This valued the cryptocurrency giant at around $86 billion. The good times were rolling. Encryption had arrived.
Performance since the IPO
And as soon as Coinbase arrived, it crashed. As I write this, it is trading at $63. This is an 83% collapse of its listing, now valued at $16.6 billion. Even the wounded Bitcoin has outgrown it since, as I have traced below. So why did it all go wrong? Well, I suppose the first thing is volatility. We shouldn’t be surprised that a stock like Coinbase is able to lose so much value so quickly. Its performance is – and always will be – symbiotic with cryptocurrencies. If the cryptocurrency goes down, interest in the markets plummets. Everyone is interested when friends are tweeting about 100x returns. This means less volume, trading fees, and ultimately worse performance for Coinbase. With the cryptocurrency’s unparalleled volatility, it should come as no surprise that Coinbase is so volatile. This is what I said at the time about it: it makes sense to buy Coinbase shares if you are an institutional investor looking for cryptocurrencies and for whatever reason – regulatory, bureaucracy etc – you cannot buy Bitcoin directly. Or maybe you are an older investor, (understandably) intimidated or not so comfortable transacting directly in the cryptocurrency markets, as far as self-custody/setting up a wallet etc, it makes sense to buy Coinbase shares. However, for anyone else, why not buy Bitcoin directly? Why go the Coinbase route; what advantage do you have?
CEO sells 2% of his stake
Founder and CEO Brian Armstrong owns a 19% stake in the company, valued at around $3.2 billion. This will soon be a 17% stake, following the announcement that he is selling a share. “I am passionate about accelerating science and technology to help solve some of the world’s biggest challenges. To further this, I am planning to sell about 2% of my holdings in Coinbase over the next year to fund scientific research and companies like NewLimit + ResearchHub.” His reasons seem sound, in fairness. However, no matter which way you do it, it’s a blow to Coinbase to have its CEO dump shares – just as it’s a blow when any insider sells. Of course, there are personal reasons why someone might want to sell — I certainly wouldn’t want to have 19% shares of a portion of my portfolio — but Armstrong’s reasoning that he wants the money to donate doesn’t change the fact that it still does. is a sell order from the CEO of Coinbase. There are many ways to monetize stocks, which executives take advantage of all the time. Take Elon Musk, who is notoriously reluctant to sell Tesla shares, putting them as collateral in financing packages or using other avenues to generate cash flow. Armstrong posted his sales order last Friday on Twitter, attaching it with the comment that he is “sharing this because he wants you to hear this from him first”, before insisting that he “intends to be CEO of Coinbase for a long time and remains super bullish on cryptocurrencies and Coinbase.”
For the avoidance of doubt, I intend to be CEO of Coinbase for a very long time and I remain super bullish on crypto and Coinbase. I’m fully dedicated to growing our business and advancing our mission, but I am also excited to contribute in a different way. — Brian Armstrong (@brian_armstrong) October 15, 2022
The future of Coinbase
This is just the latest scam for Coinbase. In June, Armstrong announced that the company would lay off 18% of its workforce, approximately 1,100 of its 6,100 employees, as cryptocurrency markets continued to lag behind, hurting Coinbase’s results. For comparison, its competitor FTX, which overtook Coinbase in May for the first time in turnover, still has an employee count of just 300. The downsizing also occurred just four months after the SuperBowl, when Coinbase famously spent $14 million in a range commercial. It posted a net loss for that quarter of $430 million, with stocks down 36% — and that was before the massive contagion unleashed in May that really sent the cryptocurrency market into a slump. Armstrong admitted that the company had expanded very quickly, but it was actually a case of extremely poor planning. Cryptocurrency markets are notoriously temperamental, and with the pandemic boom leading to financial stimulus, more disposable income for those locked at home and more computer time due to lack of socialization and the effects of quarantine, the 2020 and 2021 markets were the perfect cocktail for a Coinbase leverage. Armstrong bet big on this continuity, but the world had other ideas. Inflation knocked on the door, followed by more money printing than at any other time in history. And with rampant inflation comes interest rate hikes, sucking liquidity out of markets, bloated earnings disappear from equities, and future cash flows are discounted at harsher rates. Now it’s the exact opposite of this perfect macro COVID situation. Coinbase will need to consolidate, plan better, and hope that the economy can act together. Because encryption isn’t jumping until it does. And if cryptocurrency doesn’t jump, Coinbase certainly won’t. The dog follows the tail, don’t you know?
