Goldman Deals Down-and-Out Crypto Another Blow

Brian Armstrong isn’t having a good summer — and it’s only a week old.

On June 14, J.P. Morgan downgraded the Coinbase CEO’s Nasdaq-listed cryptocurrency exchange to ‘neutral,’ pushing the shares of COIN nearly to $50, about 85% off its launch price of $342 back in November, and off 75% this year.

But things were picking up, with the share price rising back above $62 on Friday (June 24). Then Goldman Sachs hit Armstrong’s firm with a much harder downgrade Monday (June 27), pushing its recommendation from “neutral” to “sell” and its target price from $70 to $45.

Which, needless to say, a fair number of people did, pushing COIN back toward $56 a share, down about 10%.

‘Further Degradation’

In a note released Monday, Goldman analyst Will Nance predicted “further degradation” of Coinbase’s revenues, which he predicted will end 2022 down 61%, with declines growing as the year progresses. He noted that the company “will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up.”

See also: Coinbase May Be Unfazed By 80% Drop, but Investors Are Clearly Shaken

Which, among other things, translates to far deeper layoffs than the 18% cut — 1,100 people — Armstrong announced on June 14. Nance added that it will likely have to cut into its planned share-based compensation, which could lead to a talent exodus.

A number of the large but non-public cryptocurrency exchanges such as Kraken, FTX and Binance have announced they plan to keep hiring at an aggressive pace.

Read more: For Coinbase, Crypto Winter Is Here

Beyond that, Goldman’s news came on the heels of Thursday’s (June 23) downgrade by Moody’s, which saw Coinbase Global’s long-term debt outlook fall from Ba2 to Ba3 and its guaranteed senior unsecured notes fall from Ba1 to Ba2 — with both under review for further downgrades.

Moody’s cited “Coinbase’s substantially weaker revenue and cash flow generation due to the steep declines in crypto asset prices that have occurred in recent months and reduced customer trading activity,” and predicted that profitability would remain difficult even after staff cuts.

Not Just Coinbase

The downgrade didn’t just hurt Coinbase. Bitcoin, which had weathered a dangerous weekend relatively well, generally staying about $21,000 after dropping well below the psychologically vital $20,000 mark over the previous week, dumped in tandem with Coinbase, dropping about $500 within a half hour of the Nasdaq’s opening bell. It has remained below $21,000 on Monday.

To a large extent, that’s because what happens to Coinbase has a tendency to happen to the bitcoin and broader crypto market. As the first major crypto-native firm to go public directly rather than through a backdoor special purpose acquisition company (SPAC), Coinbase is seen as something of a bellwether for crypto on Wall Street.

Related: Following Crypto Crash, Search for the Bottom Begins in Earnest

And indeed, after a week in which many top alt-coins made a comeback — most of the top 20 cryptocurrencies by market capitalization were up 5% to 15% in the past week, with a few up substantially more — almost all were down 1% to 4% on June 27.

The move comes as a wave of consolidation and buyouts of wounded companies is starting to hit crypto. Most notably on Monday, Bloomberg reported that top U.S. cryptocurrency exchange and Coinbase rival FTX is trying to buy crypto- and stock-brokerage firm Robinhood, causing Robinhood’s price to jump 14% and causing a brief halt in trading.

See also: Crypto Companies Seeking Saviors Find Wolves in Sheep’s Clothing Instead

 

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