Is Coinbase Going Bankrupt?

The share price has collapsed this year, and last quarter Coinbase had disappointing earnings, but that doesn't mean it's all over for the crypto space leader.

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What's happening

There are a couple of important takeaways from the earnings report that could explain some of the underlying issues for the company. First, it reported a significant loss, due to two important factors:

A large provision from the loss of value in its crypto holdings. That's a bit worrying, given it works in the crypto space. But a decline in those assets is in line with expectations given the Fed's aggressive actions in cutting back liquidity.

The company budgeted a large amount for additional spending on investments. Which normally is a good thing, but it came coupled with guidance of lower trading volume in the next quarter. But the firm still affirmed "strong growth" by the end of the year.

Tracking the bounce

Coinbase followed up on its earnings with a mixed shelf offering. That the shares didn't fall immediately after poor earnings and the prospect of selling shares could be a reassuring sign. Despite the somewhat disconcerting comment that the CEO had to come out to say that a bankruptcy was not imminent.

Given what's happened in the crypto space lately, it's not surprising that a crypto trading firm would have financial difficulties. Particularly in light of the surge in trading during the final quarter of last year. The latest earnings in terms of monthly users and net revenue are actually higher than the first three quarters of last year. Furthermore, the majority of the company's trading revenue comes from BTC and ETH, and the less reliable coins represent 31% of trader's assets.

Just how "temporary" is it?

Coinbase reported $1.3B in crypto assets. This is concerning, but the firm has $6.1B in cash, more than four times its exposure to crypto holdings. So, even if the crypto market entirely collapses, the company isn't about to run out of money. But that doesn't mean it couldn't face some difficulties in the medium term.

COIN to fresh lows

Coinbase’s turn at 368.68 in September ’21 has led to a massive sell-off near the $100 support. After the report, the stock hit a record low of $40.84 and was since bought. It now trades as high as $65 per share.

Interestingly, the A/D indicator shows no accumulation, and net, distribution has been negative and flatlined since March. This suggests the short-term upside may be a relief bounce. Without an upward tick on the A/D indicator, coinbase faces serious resistance at the median regression channel, and then near its top. The regression channel formed from a similar daily candlestick in January, which didn’t end well.

Levels are dynamic, but bring us to around $85 in the first instance and 130 in the second – depending on time. Swing resistance can be observed above $110. Inversely, 40 is major support.

Source: Spreadex trading platform

Key takeaways

Coinbase reported a concerning numbers due to a large provision from the loss of value in its crypto holdings and guidance of lower trading volume in the next quarter. But the trading firm has spare cash to cover financial difficulties that may appear in the medium term.