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Reach out to Coinbase investors today.
CEO and founder Brian Armstrong has announced that he is selling his 2% stake.
Coinbase, the second largest cryptocurrency exchange in the world, was a guinea pig for cryptocurrencies.
The company eschewed the traditional route of an IPO and instead pursued a direct listing when the shares went public on the Nasdaq stock exchange in April 2021. It was the fact that it was published in the first place.
It represents the cipher seated at a large table. It was born at a time when no cryptocurrency company had ever gone public and every cryptocurrency under the sun was generating exorbitant profits for investors.
It seems so long ago now. Bitcoin opened at $59,000 that morning. Jerome Powell’s printer was red hot.
Coinbase went public that morning and closed the first day of trading at $328 per share. It’s a cryptocurrency giant he valued at nearly $86 billion. Good times were rolling.
I got the crypto.
And it fell as soon as Coinbase arrived.
As of this writing, it is trading at $63. That’s an 83% meltdown from when it went public, and it’s now worth $16.6 billion. Even hurt Bitcoin has outperformed since then, as I plotted below.
So where did we go wrong? First, I think volatility. It’s no surprise that a stock like Coinbase can lose this much value so quickly. Its performance has always been symbiotic with cryptocurrencies.
When cryptocurrencies fall, interest in the market plummets. Everyone wants to be in when a friend tweets about his 100X return. This means that transaction volumes and transaction fees will decrease and ultimately Coinbase will perform poorly.
With crypto’s unparalleled volatility, it’s no surprise that Coinbase is extremely volatile. This was what I said at the time. If you’re an institutional investor looking for cryptocurrencies and for whatever reason, regulation or bureaucracy, you can’t buy Bitcoin directly, buying Coinbase stock makes sense.
Alternatively, you may be an older investor who (understandably) is intimidated or uncomfortable trading directly in the cryptocurrency market when it comes to self-management, wallet setup, etc. It makes sense to buy Coinbase stock.
But for others, why not buy Bitcoin directly? Why go through the Coinbase route. What are the advantages?
Founder and CEO Brian Armstrong owns a 19% stake in the company, valued at approximately $3.2 billion. Soon it will be his 17% stake.
I am passionate about accelerating science and technology to solve some of the world’s greatest challenges. We plan to sell about 2% of Coinbase’s holdings over the next year to provide more.”
In all fairness, his reasoning seems reasonable. However, no matter how you shake this, Coinbase’s CEO dumping stock is a blow.
Sure, there are personal reasons for wanting to divest I certainly don’t want to have a 19% stake as part of my portfolio but the reason Armstrong wants to donate that money is , does not change the fact that this is still the case. Sell order by the CEO of Coinbase.
There are many ways to monetize stock holdings, and executives take advantage of them all the time. Elon Musk is notoriously reluctant to sell Tesla shares. Instead, it generates cash flows as collateral for funding packages or using other means.
Armstrong posted the sell order on Twitter last Friday, adding, “I want you to hear from me first so I’m sharing this,” before adding, “I’ve been CEO of Coinbase for a very long time. and I remain very bullish on crypto and coinbase.
https://twitter.com/brian_armstrong/status/1581099661921656834
This is just Coinbase’s latest blow.
In June, Armstrong announced that it would lay off 18% of its 6,100 employees, or about 1,100, as the cryptocurrency market continued to slump and Coinbase’s earnings deteriorated. For comparison, competitor FTX, which overtook Coinbase in trading volume for the first time in May, still has only 300 employees.
The downsizing comes just four months after the famous Super Bowl, which saw Coinbase spend $14 million on halftime commercials. That quarter he posted a net loss of $430 million and the stock fell 36% for him. This was before May’s huge outbreak really gave the crypto market a tailwind.
Armstrong admitted that the company expanded too quickly, but in reality it was very poorly planned. The cryptocurrency market is notoriously fickle, with the pandemic boom bringing stimulus checks, rising disposable incomes for those stuck at home, and given the lack of socializing and the impact of quarantine, more people are using their computers. The 2020 and 2021 markets were perfect because we spent Cocktails for the preparation of the coinbase.
Armstrong made big bets that this would continue, but the world had other ideas. Inflation finally subsided after he printed the most cash in history. And when inflation runs rampant, interest rates rise, liquidity drains from markets, inflated earnings disappear from stocks, and forward cash flows are discounted at tougher interest rates.
It’s the exact opposite of that perfect COVID macro situation right now. Coinbase needs to consolidate, plan better and hope the economy will be able to act together. because it doesn’t bounce. If cryptocurrencies don’t bounce back, so will Coinbase.
Do dogs purr their tails?
