Can the largest crypto exchange go bankrupt: the answer of its head
Brian Armstrong, CEO of crypto exchange Coinbase, was quick to console investors and customers amid the company's reporting of an unsuccessful first quarter of 2022. Armstrong said that Coinbase is not at risk of bankruptcy, and all funds invested in it are completely safe. Most likely, such serious statements were a reaction to the current events in the niche of cryptocurrencies, which became a reason for the panic of its participants. Let's talk about the situation in more detail.
Note that there are enough reasons for concern around the fate of Coinbase. And this is not only the situation in the cryptocurrency market in general or not the best first quarter of 2022, but also the behavior of the company's shares.
They are now valued at $52, equivalent to a 79 percent drawdown since the start of 2022. Naturally, such indicators will make investors think carefully - which explains the manager's remarks.
What's going on with Coinbase
Shares of Coinbase (COIN) fell 16 percent in over-the-counter trading on Tuesday after the company posted a lower-than-expected first-quarter earnings report, according to CryptoPotato sources . Between January and March, the exchange suffered a net loss of $430 million. At the same time, according to the results of the first quarter, the company's revenue for the year decreased by 35 percent to $1.16 billion against the expected $1.5 billion.
Since Coinbase generates more than 85 percent of its income from cryptocurrency transactions, the company said the poor first-quarter earnings report was due to the crypto market's decline and increased volatility since the beginning of the year.
This explanation seems logical. Yet, as the digital asset industry declines, fewer traders interact with it. Investors are simply afraid of losing money and, in addition, are in no hurry to get involved in the niche of coins after real cases of losses. And since they do not conduct transactions and do not conclude transactions with the same intensity as they did a month or two ago, the platform loses in income in the form of commissions for conducting trading operations.
In addition, the report mentioned a new 10-Q filing with the US Securities and Exchange Commission. According to this declaration, the clients of the exchange can be considered as "general unsecured creditors". In other words, if Coinbase ever files for bankruptcy, customers could lose all of the cryptocurrencies held on the exchange as they will be the last in line to claim. Armstrong noted that the company was not at risk of bankruptcy and that the 10-Q was drafted in accordance with the requirements of the Securities and Exchange Commission. Here is a relevant quote from the entrepreneur.
We do not have bankruptcy risk, however, we have included a new risk factor based on the SEC requirement called SAB 121, which is a new mandatory disclosure for public companies that hold crypto assets for third parties.
Accordingly, the relevant document was filed not because of alleged financial problems, but solely out of necessity. In addition, the day before, Brian Armstrong has already stated that the number of people who want to interact with the trading platform is more than enough. So, the company is really unlikely to face serious problems - besides, it has experienced more than one cycle of growth and collapse of the coin market.
Speaking of the US Securities and Exchange Commission. The day before, the head of the financial regulator, Gary Gensler, said that many crypto exchanges cannot fully protect their customers. Moreover, some of them actively "trade against" their own traders. Here is his retort.
Cryptocurrency has many such problems - platforms trade in secret from their clients. In fact, they often trade against clients because they are market making.
Most likely, we are talking about the use of user funds by platforms for transactions. We analyzed a similar case the day before in the form of expert comments.
We believe that the negative situation with the Coinbase exchange as a whole reflects the situation in the cryptocurrency market. And since digital assets are the main field of activity of the company, this affects its financial performance. The only reassuring thing here is that the platform has already experienced large-scale niche collapses and is aware of the toughness of bear markets. Therefore, this time is unlikely to be an exception.
Follow the development of the situation in our crypto chat millionaires . There we will talk about other topics related to blockchain and decentralization.
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