- Coinbase fell as much as 18% in Wednesday's pre-market after it missed analysts' estimates for Q1.
- The company pinned its first-quarter performance to "weaker crypto market conditions."
- With rising interest rates, the cryptocurrency market faces a lull as investors shy away from risk.
Coinbase fell as much as 18% in pre-market trading on Wednesday after the company missed analyst estimates with its first-quarter results.
The drop comes against a backdrop of a declining cryptocurrency market as rising interest rates and higher inflation drive investors away from riskier assets.
The cryptocurrency exchange reported trading volume of $309 billion in the first quarter, down just 7% year-on-year, but marking a 44% drop from the last quarter of 2021. It said net revenue was $1.2 billion, down 56% compared to Q4.
Coinbase reported a net loss of $430 million in the first quarter of 2022, compared with a net profit of $771 million at this point last year. The company attributed its poor performance to "weaker crypto market conditions" in the first three months of the year, when the entire crypto market declined, compared to the fourth quarter of last year, when many cryptocurrencies, including bitcoin, hit record highs.
"I think it's worth just addressing the elephant in the room, which is that, of course, the broader markets are down. We're seeing a down market for growth tech stocks and risk assets," Brian Armstrong, Coinbase chief executive, said on an earnings call with investors.
He added however that he's actually "never been bullish" on where Coinbase is as a company, saying the exchange does its "best work" in "down periods."
At the time of writing, Coinbase were around $60.19, down about 17.5% from Tuesday's closing price, having fallen briefly below $60 earlier in the day. The shares closed down 12% at to $72.99 in regular trading the previous day.
Coinbase has suffered even more than bitcoin so far this year. Its shares have fallen 71% since the start of 2022, compared with a 33% drop in the value of bitcoin. The company went public to great fanfare 13 months ago, when its shares soared to a high of almost $430 upon its debut. They've since lost almost 85% in value.
The cryptocurrency market, along with stocks and bonds, is struggling as the Federal Reserve has tightened its efforts to fight inflation by hiking interest rates. The central bank raised the benchmark by half a point to 1% earlier this month, marking the largest increase in 22 years.
With a combination of soaring inflation running at 40-year highs and higher interest rates, investors have become warier of risky assets, and that includes cryptocurrencies. While some, like BlackRock, are telling investors to steer clear of risk, others remain bullish like JPMorgan's top strategist Marco Kolanovic who says the market has reached "peak hawkishness."
Looking ahead, Coinbase said it is expecting a "prolonged and stressful scenario" for the business but plan to invest significantly, yet prudently throughout 2022. It added: "We believe these market conditions are not permanent and we remain focused on the long-term."