What’s happening at Coinbase?

Good morning! Welcome to The Daily Moon. It’s a brand new week. The crypto market's slowdown is making the best laid plans go awry. See what happened with UK-based crypto exchange Ziglu. Robinhood was to acquire it for $170 million. But four months later, it has scored a ~60% discount on its initial offer. Because, well, market. And Ziglu has accepted the revised $72.5 million offer. Welp!

The markets were down with Bitcoin trading at ~$21,300 levels, led by concerns over larger macroeconomic uncertainty. Ethereum fell over the weekend too, and was trading at ~$1,595. Nasdaq closed down after a broad mega cap selloff. This was reflected in the Indian markets as well, with Sensex and Nifty closing down on Friday.

The Rise And Fall Of Coinbase 

We’ve said it before, won’t hurt to say it again. Troubles seem to love Coinbase. Or maybe it is the other way round. A recent study by the University of Technology in Sydney, Australia found that the largest publicly traded cryptocurrency exchange has a big insider trading problem. This comes about a month after one of its former employees and two associates were charged in an insider trading case.  

What does the study say?

The research estimated that 10-25% of the cryptocurrency listings on Coinbase saw insider trading between September 2018 and May 2022. They estimate that this resulted in around $1.5 million in trading profits. 

Insider trading is a bit of a grey area in crypto. You know how that goes. The regulators have pretty much decided to apply the rules of securities and commodities trading to crypto. And Coinbase has pushed back. This bears relevance for the crypto sector at large, but isn’t doing Coinbase any favours at the moment.  

FYI: The former Coinbase employee has pleaded not guilty to the charges. Him and his brother have said the information they had wasn’t confidential anyway. 

Deeper issues

Coinbase’s issues run deeper than just these recent allegations. The crypto exchange has had a series of missteps and external events affecting what could have been a formidable crypto company. Overhiring early on, not being able to expand internationally, a botched up NFT marketplace that never took off, are just some of them. 

There is, of course, no escaping the crypto winter. The general market slowdown is impacting Coinbase just as much as any other player. Some of it was evident in its $1 billion loss in Q2, when it reported financial results earlier this month. Then there is the wider regulatory scrutiny, which has resulted in an SEC probe. It has sparred with the regulator earlier, but clearly, that hasn’t worked to its advantage. 

When it listed last year, Coinbase began trading at $381. Today, it trades at around $83.

What the future holds

No matter how dark the proverbial dark clouds, there’s always a silver lining. Just last week, JP Morgan said the Ethereum Merge will likely have a positive impact for Coinbase. It predicts as much as $650 million in annual staking revenue for the exchange. 

But with scams on the rise, and the relative unknowns of what the Merge will bring, Coinbase is not taking chances. It will halt ETH and ERC-20 token deposits and withdrawals during the Merge. 

Where does it leave the future of the exchange? Analysts have said before that it needs to diversify its revenue base. In its Q2 earnings, it outlined the main areas it plans to focus on – its retail and Prime apps, Cloud for developers, and Web3. The streamlining may help it reign in costs in the short run. But only time will tell what works and what doesn’t.

Miners Shut It Down

It pays to not mine if you’re in Texas. The state had, in the peak of summer, asked miners to put a pause on mining. Riot Blockchain and many other miners like it paused their operations as they battled power cuts and requests by the lawmakers. Riot, for instance, minted 28% fewer Bitcoins in July than it did the preceding month. But it lost no money despite the loss in performance. The state gave it $9.5 million in power credits. These credits are more than the company lost when it turned off its servers. More such power cuts and credits are expected to happen as the world starts to face the effects of climate change. 

How did they get to Texas?

Miners have been flooding to Texas for the past year. China had banned mining in its borders, the companies went to Iran and Kazakhstan from where they were expelled as well. They found a home in Houston, Texas, which has, over the past two years, started to emerge as an alternative to the Bay Area. 

Social Photo by Nick Chong on Unsplash

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Who are we? There is a lot happening in our world. Everything has layers, and each layer has to be carefully peeled so you, the reader, know how the world of money is changing every day. That’s our promise. Help you unpeel the onions, which are the public markets in the US, India, and crypto, so that you know just a little more.