When cryptocurrency exchange Coinbase went public in April 2021, it was a triumphant moment for the emerging crypto industry.
But the company has endured a grim 2022, grappling with a crypto market crash that sent its share price plummeting and forced it to lay off hundreds of employees.
That battle continued on Tuesday as Coinbase reported a 63 percent drop in revenue in its second quarter, reaching a loss of $1.1 billion from a year ago.
Blaming the “rapid and furious” crypto decline, the company said revenue was $808 million, down from $2.2 billion a year earlier. Monthly customer totals rose from 8.8 million last year to nine million, but fell from 9.2 million in the last quarter. Coinbase also predicted that the number of users would continue to decline over the next three months.
In an earnings call on Tuesday, Coinbase CEO Brian Armstrong emphasized crypto’s cyclical nature and pointed out that the company had survived past recessions.
“It seems scary,” he said. “But it’s never as bad as it seems.”
The results illustrated the grim challenges Coinbase is facing at a turbulent time for the crypto industry. Prices of the leading digital currencies plunged in May and June as a series of experimental crypto ventures collapsed, plunging investors into financial ruin. The crash has led to layoffs across the industry, dampening the excitement that escalated last fall when Bitcoin’s price hit an all-time high.
As part of the industry collapse, Coinbase’s stock price has fallen about 75 percent since November. The company’s success is largely linked to the swings of the broader crypto market. In the second quarter, more than 80 percent of its revenue came from trading fees it charged customers for buying and selling digital assets like Bitcoin and Ether.
In June, Coinbase laid off 18 percent of its staff, or about 1,100 employees. Armstrong said at the time that the company “hired too much”.
Coinbase’s recent troubles have fueled concerns that it could be wasting its early lead in the industry as competitors such as Binance and FTX expand during the downturn.
Despite its early start, Coinbase has never had a strong foothold in the international market and has recently failed an expansion effort in India. The most hyped product launch of the year — a marketplace for the digital collectibles known as nonfungible tokens or NFTs — drew little interest from customers. And a hiring boom last year led to overspending and bloating as the company’s costs more than doubled.
“We could probably have grown more slowly in recent years,” said Mr. Armstrong during the phone call.
Coinbase has also come under regulatory scrutiny. Last month, the Justice Department filed a charge for insider trading against a former Coinbase employee. In a related action, the Securities and Exchange Commission said it considers some of the digital coins listed on Coinbase’s exchange to be securities and therefore subject to regulation such as stocks or bonds — a position the company has objected to.
In a letter to shareholders on Tuesday, Coinbase said the SEC sent the company a “voluntary request for information” about that listing process in May. “We do not yet know whether this investigation will become a formal investigation,” the letter said.
Coinbase’s competitors seem to be doing better during the recession. FTX, another crypto exchange, has achieved financial results “similar” to last year’s, according to its CEO, Sam Bankman-Fried. Binance, the world’s largest exchange, announced in June that it was looking for 2,000 vacancies.
Still, Coinbase remains one of the most trusted and recognized crypto brands in the United States, known for its Super Bowl commercial featuring a bouncing QR code. Last week, the company announced a partnership with BlackRock, the world’s largest asset manager, to help institutional investors trade Bitcoin.
