January 11, 2023 - 1:00pm

During a winter that many crypto fans already want to forget, the latest fear, uncertainty and doubt — or “FUD” — arose when Coinbase, the largest regulated exchange in the US, fired roughly one-fifth of its staff. The 1,200 employees set to be let go constitute a sharp increase from 60 fired last November, which coincided with the demise of Sam Bankman-Fried’s Ponzi empire. 

Now, however, it is Coinbase’s turn to face the music. Its stock price has tumbled from $360 to $44 apiece, losing 88% of its value since the start of 2022. The crypto exchange had only gone public seven months previously at around $430, a month after CNBC’s Mad Money host Jim Cramer infamously declared: “We like Coinbase to $475 [per share]”.

The collapse of Coinbase’s stock should come as no surprise. In fact, many betting on the falling share price also predicted the demise of the company itself. Short-seller Jim Chanos, who exposed Enron in 2001, had not only grown sceptical of crypto but also of the many flawed business models that prominent crypto entities had adopted. Chanos identified Coinbase as one of many companies “sucking fees” and “ripping off retail clients.”

So when the bear market in technology stocks started gaining momentum at the beginning of 2022, Chanos’s firm shorted Coinbase’s stock. “Tech stocks don’t do well in reverse,” he said during a Crypto Critics Corner interview a few months later. “When they have to start shrinking, bad things happen.”

Fast forward to today, and that rings true for Coinbase. Its stock price has not only plunged, but the exorbitant fees the crypto exchange has been charging customers have come back to bite it, crippling its market share, profitability, and, of course, employee count. Chanos recently estimated that Coinbase has been charging 2.6% for “retail investor round-trip trades”, while the crypto exchange is still losing $500 million per quarter. If Coinbase doesn’t reduce its fees and crypto trading volumes continue to fall, its sales will come in at 30% lower than the 2023 consensus.

That’s the good news. As the bear market sets in, Coinbase may face a reckoning of its own. The crypto exchange uses its regulated status as a major selling point — even though it has flouted many rules. Indeed, Coinbase recently agreed to pay $100 million to end an investigation into its failure to implement anti-money laundering (AML) and know-your-customer (KYC) policies. Multiple insiders have been leaking information to front-run customers, with one study suggesting “token front-running” was more common than previously thought. The fact that PonziCoin is allowed to appear on Coinbase’s website is revealing enough.

The only thing going for Coinbase now is that it provides an off-ramp for those wanting to convert cryptocurrencies into fiat in a regulated fashion. But competition exists and will likely challenge Coinbase someday. With its former reputation, true crypto believers won’t have trouble departing. Most fans, along with crypto sceptics, regulators, and law enforcement, will happily welcome the exchange’s downfall.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at@concodanomics.