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Coinbase's stock is down almost 90%. I personally believe it could be doomed to bankruptcy or delisting. Am I crazy?

necovek 4y ago
You are not crazy, but you are conflating multiple things. Exchanges are solvent when they've got enough funds to cover customers' deposits. If Coinbase keeps exactly the same cryptocurrencies that their customers have deposited, they are (trivially) solvent. They could also cover deposits with anything else that has at least that same (stable) value. FTX was not solvent because it reinvested customer deposits into other risky businesses. Next, Coinbase stock is down 90% compared to when? Bitcoin is down more than 75% to the all time high. Perhaps both were overvalued? It is not surprising that investors are not very high on crypto firms after FTX. Binance coin, just like FTX coin, is only reflecting current trust in Binance. If Binance turns out not to be solvent (like scandals around FTX uncovered), Binance coin will quickly turn to dust as well. So, both stock price and coin value are measures of trust (especially in how big earnings are they going to see), and while it helps a public company in need of refinancing to have a larger stock price, it should not in general affect their day to day operations. Bankrupcy comes out of not being solvent, which is only related to stock price when you want loans or refinancing or stock sale to cover for what you owe and don't have the cash for. Sure, large companies never have simple "solvent or not solvent" indicators, but stock price is not it (stock prices have been falling even for companies with large cash reserves, like Google/Alphabet).
- alanany 4y ago
  Wonderful detailed explanation. Thanks! I couldn’t agree more. FTX did use customer funds which led them to where they are today. My problem is that I’m treating Coinbase as a regular company. Regardless of user funds, which supposedly are kept unused, they’re losing money each quarter, a good amount, and they’re losing the investor sentiment. Putting that together, what would stop them from losing even more stock value? Over the short term, I don’t believe a stock symbolizes much. But over the long term, it does. The only problem is, it’s not easy to recover from an all time drop of 95%, for example. (if it reaches that.) All the other similar startups have drops, but: 1. It’s not as major. 2. They’re not directly related to the crypto market. Sentiment plays a bigger game here. Just doing a brain tease, thanks a million for your comment, I’m enjoying this.

You are not crazy, but you are conflating multiple things. Exchanges are solvent when they've got enough funds to cover customers' deposits. If Coinbase keeps exactly the same cryptocurrencies that their customers have deposited, they are (trivially) solvent. They could also cover deposits with anything else that has at least that same (stable) value. FTX was not solvent because it reinvested customer deposits into other risky businesses. Next, Coinbase stock is down 90% compared to when? Bitcoin is down more than 75% to the all time high. Perhaps both were overvalued? It is not surprising that investors are not very high on crypto firms after FTX. Binance coin, just like FTX coin, is only reflecting current trust in Binance. If Binance turns out not to be solvent (like scandals around FTX uncovered), Binance coin will quickly turn to dust as well. So, both stock price and coin value are measures of trust (especially in how big earnings are they going to see), and while it helps a public company in need of refinancing to have a larger stock price, it should not in general affect their day to day operations. Bankrupcy comes out of not being solvent, which is only related to stock price when you want loans or refinancing or stock sale to cover for what you owe and don't have the cash for. Sure, large companies never have simple "solvent or not solvent" indicators, but stock price is not it (stock prices have been falling even for companies with large cash reserves, like Google/Alphabet).

alanany 4y ago
Wonderful detailed explanation. Thanks! I couldn’t agree more. FTX did use customer funds which led them to where they are today. My problem is that I’m treating Coinbase as a regular company. Regardless of user funds, which supposedly are kept unused, they’re losing money each quarter, a good amount, and they’re losing the investor sentiment. Putting that together, what would stop them from losing even more stock value? Over the short term, I don’t believe a stock symbolizes much. But over the long term, it does. The only problem is, it’s not easy to recover from an all time drop of 95%, for example. (if it reaches that.) All the other similar startups have drops, but: 1. It’s not as major. 2. They’re not directly related to the crypto market. Sentiment plays a bigger game here. Just doing a brain tease, thanks a million for your comment, I’m enjoying this.