On the fourth quarter of 2021, Coinbase shares were trading around record highs, worth more than $340 before starting to fall as tech stocks corrected in the new year. These declines persisted into 2022, causing Coinbase to continue to lose altitude early in the year.
The company’s fourth-quarter results reported in February were strong, but it warned of a slowdown in business activity. This deceleration in trading activity continued, dragging the US crypto exchange’s first-quarter earnings, pushing its stock value to new lows.
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Despite rebounding to around $67 this morning, Coinbase’s value fell to just $40.83 during its liquidation, which began in November.
From a high-flying direct listing with a massive market capitalization that proved crypto transmission companies could generate metrics that captured the attention of traditional investors, Coinbase’s downfall was dramatic.
Its stock’s decline was also painful, as its declines weren’t simply due to shifting market sentiment toward tech companies — although that didn’t help. The rising cost structure and falling company revenue made it clear that mining liquidity from the crypto market was more costly and variable than some public market investors had anticipated.
What is the value of these same startups now that Coinbase has been overhauled and its underlying market is floundering in the crypto equivalent of a recession?
In its recent first-quarter earnings call to investors, the company had notes on that exact point. Let’s explore.
The public-private valuation gap
Before we dive in, it should be noted that there is little in our work today that is unique to crypto. Most investors, private and public, overvalued tech companies last year. These erroneous valuation marks, set during one of the hottest times for investing, landed all over the tech market and are still being traded today.
But the crypto market has a particular problem in that its venture capital totals did not peak in the fourth quarter of 2021, but in the first quarter of 2022, which means that the investment cycle for crypto startups has remained. hot longer and that crypto startups will feel the pain (when it comes to dealing with overly rich private valuations) a bit later than their more traditional counterparts.