Shares of cryptocurrency exchange Coinbase fell by nearly a quarter on Wednesday after reporting dismal results, as its chief executive rushed to quell what he called unnecessary bankruptcy fears.
Coinbase shares fell 23% after the company reported a sharp drop in its revenue, missing analysts’ expectations and a sharp drop in trading volumes in its first-quarter results on Tuesday.
Poor results and concerns about regulatory filings later in the day prompted CEO Brian Armstrong status on twitter Coinbase has “no risk of bankruptcy”.
His comments came after a new disclosure suggested customers could be in trouble for filing claims against the exchange, sparking panic among Coinbase’s users.
According to the filing, Coinbase’s custodial cryptocurrencies for users “may be subject to bankruptcy proceedings, and these customers may be considered our general unsecured creditors.” As a result, users may find the platform “riskier and less attractive,” potentially damaging their finances, the document said.
But Armstrong rushed to reassure users, apologizing for failing to “proactively” communicate when the new wording was added.
2/ We are not at risk of bankruptcy, but we have added a new risk factor as required by the SEC called SAB 121, which is a new required disclosure for public companies that hold crypto assets for third parties. https://t.co/lwmgb1kFtA
— Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022
“There was some noise about what we disclosed in Q10 [regulatory filing] Today about how we hold crypto assets,” Armstrong tweeted, adding that the exchange changed its terms to meet regulatory requirements rather than risk bankruptcy.
Analysts at Wedbush noted that Coinbase is “cash rich” and remains “aggressive” in investing during a downturn.
In its first-quarter results, the company reported a bigger loss than Wall Street had expected — $430 million compared with analysts’ estimates of $47 million — and forecasted continued declines in trading volumes and user numbers for the quarter.
Coinbase shares have fallen 67 percent since the start of the year, falling below $100 for the first time since the company went public last April. At the time of the IPO, Coinbase shares were valued at $381.
The health of Coinbase’s business has long tracked trends in the broader cryptocurrency market, thanks to a boom in speculative trading by retail investors in the first half of last year.after it public market debutthe company’s profits have surpassed more established exchange operators, including CME Group and Intercontinental Exchange, during the 2021 bull market.
However, the recent rise in interest rates has caused investors to flee the riskiest corners of global financial markets, triggering what has been dubbed the latest “crypto winter” in a crypto bear market.
Bitcoin has Sharp drop recentlyThe collapse of stablecoin Terra led to broader volatility in the cryptocurrency market, falling below $30,000 for the first time since earlier this week.
Coinbase also faces regulatory hurdles. In a conference call with analysts on Tuesday, Armstrong said the company had ceased services in India just days after it launched to the market due to “informal pressure” from the Reserve Bank of India. Armstrong has previously clashed with U.S. regulators, which are currently surrounding the industry.
Last year, he accused the SEC of “rough conduct” as it threatened to sue the company if it launched specific loan products. Coinbase later shelved plans for a Lend product.
Despite the slump, Armstrong and other executives have repeatedly tried to reassure investors that the downturn could be an opportunity for the company to focus on diversifying its business, investing in product innovation and hiring talent. The company recently launched a non-fungible token marketplace and has been exploring areas such as crypto derivatives.
Coinbase signed its shareholder letter with #wagmi, a hashtag popular in the crypto community for “we will all succeed.”