A 'greedy' contrarian bet

Coinbase’s first-quarter results confirmed what many analysts know to be true: When the digital-assets markets slump, its core retail crypto-trading business is going to take a hit.

But while rival Robinhood is slashing costs and other startups resort to layoffs, Coinbase is not making drastic cuts. It’s even been hiring more people.

It’s a contrarian bet. And in these uncertain times for crypto, a risky one.

“We remain focused on the long term,” Coinbase told shareholders as it reported results that sent its stock tumbling on Tuesday after hours.

• Might as well try to get people to look at the long term, because the short-term view didn’t look that good. Revenue dropped 35% year-over-year. Instead of the Wall Street consensus of a profit of 17 cents a share, the crypto exchange posted a loss of $1.98 a share.
• Retail traders seem to be pulling back. Coinbase said its monthly transacting users totaled 9.2 million in the first quarter, down 2.2 million or 19% from the fourth quarter. The company said it expects monthly users to fall again in the current quarter.
• CEO Brian Armstrong kicked off the earnings call by citing the “elephant in the room”: the fact that the whole market is down. He reminded analysts that Coinbase has been consistent in warning about the market’s ups and downs. He even quoted from Coinbase’s direct-listing filing, which told investors they “can expect volatility in our financials, given the price cycles of the cryptocurrency industry.”

Coinbase is making the most of bad times. Despite the market uncertainty, Coinbase is not pulling back. In fact, the company sees ”down periods as a big opportunity,” Armstrong said on the call.

• One analyst on the call asked about Coinbase’s hiring binge. “What exactly are the 1,200 people doing?” he asked.
• Most of those staff members were hired for product engineering and design and for compliance roles, COO Emilie Choi answered. She said the company is “making sure that we're building the right infrastructure as we scale up.”
• Not every analyst thought that sounded like the right move. Bernstein analyst Harshita Rawat said that some investors hope Coinbase would "trim back some [operating expenses] for the year in light of the crypto market weakness.” Instead, she noted, Coinbase isn’t cutting back, even though some new initiatives such as the company’s NFT marketplace “are off to a slow start.”

“We’re greedy when others are fearful,” Armstrong said. Downturns, when “others typically get distracted,” are a good time to invest, including in great talent, he said. “We tend to do our best work in down periods.” The thing is, as a public company, Coinbase doesn’t get to grade its own work. Wall Street is doing that, and it’s not impressed.

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On the money

KuCoin raised $150 million, putting its valuation at $10 billion. The crypto exchange’s pre-series B round was led by Jump Crypto, with participation from Circle Ventures, IDG Capital and Matrix Partners.

Bolt allegedly overstated its tech capabilities and misrepresented its customer list to investors. According to reporting by the New York Times, the payments startup would often present merchants to investors before confirming that they were even able to use Bolt’s technology. Other customers have accused it of not delivering on its tech promises.

Chainalysis is now worth $8.6 billion. GIC, Singapore’s sovereign wealth fund, reportedly led a $170 million funding round in the blockchain analytics startup.

The U.K. is planning on introducing crypto legislation to seize ransomware profits. Included in the “Queen’s Speech” address were two new bills that aim to support “the safe adoption of cryptocurrencies” and "powers to more quickly and easily seize and recover crypto assets.”

A group of environmental NGOs wants the White House to do something about bitcoin mining. A letter, signed by the Environmental Working Group, Greenpeace and others, has been sent to the Biden administration, asking for the implementation of stringent reviews on the impact of bitcoin mining on local communities and their environments.

FTX.US is launching a supplemental-income pilot program in Chicago. At the opening of its new headquarters in Chicago, the crypto exchange giant announced a program in partnership with the city to sponsor 100 residents in a yearlong initiative.

The run on UST

Treasury Secretary Janet Yellen is concerned about UST, a stablecoin that has lost its dollar peg twice in recent days. She said UST had "experienced a run" at a Senate Banking Committee hearing Tuesday.

The algorithmic stablecoin UST, which is on the Terra network, is designed to keep a one-to-one peg with the U.S. dollar. But the stablecoin dropped as low as $0.60 over the weekend and was trading around $0.78 Tuesday evening. It's not clear what caused the stablecoin to lose its peg.

Stablecoins have come under increasing scrutiny by regulators because of their growth and potential to cause a systemic risk to the financial system.

Over the weekend, Luna Foundation Guard, a nonprofit that supports the network and includes Jump Crypto as a backer, responded to the depeg by saying it would loan bitcoin and UST funds to defend UST's peg to the dollar.

The SEC has previously issued a subpoena for Terraform Labs, the creator of Terra, and its CEO Do Kwon.

— Tomio Geron (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.

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