When the cryptocurrency exchange Coinbase went public in April 2021, it was a triumphant moment for the nascent crypto industry.
But the company has endured a grim 2022, grappling with a crypto market crash that has tanked its stock price and forced it to lay off hundreds of employees.
Those struggles continued on Tuesday when Coinbase reported a 63 percent decline in revenue in the second quarter and swung to a $1.1 billion loss from a year ago.
Blaming the “fast and furious” crypto downturn, the company said revenue was $808 million, down from $2.2 billion a year earlier. Its monthly customer total rose to nine million from 8.8 million last year, but was down from 9.2 million in the last quarter. Coinbase also predicted that its user numbers would continue to fall over the next three months.
In an earnings call on Tuesday, Brian Armstrong, Coinbase’s chief executive, emphasized the cyclical nature of crypto and pointed out that the company had survived previous downturns.
“It seems scary,” he said. “But it’s never as bad as it seems.”
The results illustrated the stark challenges facing Coinbase at a turbulent moment for the crypto industry. The prices of the leading digital currencies crashed in May and June as a series of experimental crypto ventures collapsed, investors plunged into financial ruin. The crash has led to layoffs across the industry, dampening the excitement that surged last fall when the price of Bitcoin reached a record high.
As part of the industry meltdown, Coinbase’s stock price has fallen about 75 percent since November. The company’s success is largely tied to the fluctuations of the broader crypto market. In the second quarter, more than 80 percent of its revenue came from trading fees it charged customers to buy and sell digital assets like Bitcoin and Ether.
In June, Coinbase laid off 18 percent of its staff, or about 1,100 employees. Mr. Armstrong said at the time that the company had “over-hired.”
Coinbase’s recent struggles have fueled concerns that it may be squandering its early lead in the industry, as competitors like Binance and FTX expand during the downturn.
Despite its early start, Coinbase has never had a strong foothold in the international market, and it recently botched an expansion effort in India. Its most hyped product launch of the year — a marketplace for the digital collectibles known as nonfungible tokens, or NFTs — drew little customer interest. And a hiring spree last year led to overspending and bloat, as the company’s expenses more than doubled.
“We probably could have grown slower over the last couple of years,” Mr Armstrong said on the call.
Coinbase has also come under regulatory scrutiny. Last month, the Justice Department filed insider-trading charges against a former Coinbase employee. In a related action, the Securities and Exchange Commission said that it considered some of the digital coins listed on Coinbase’s exchange to be securities and, therefore, subject to regulation like stocks or bonds — a stance the company has objected to.
In a letter to shareholders on Tuesday, Coinbase said that the SEC sent the company a “voluntary request for information” in May about that listing process. “We do not yet know if this inquiry will become a formal investigation,” the letter said.
Coinbase’s competitors appear to be faring better during the downturn. FTX, another crypto exchange, has had financial results that are “ballpark similar” to last year’s, according to its chief executive, Sam Bankman-Fried. Binance, the world’s largest exchange, announced in June that it was looking to fill 2,000 positions.
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.