Coinbase Stock Drops Once More - How Low Will It Go?

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Coinbase stocks have earned a reputation for hitting all-time lows of late, and investors no longer see it as a surprise. On Thursday, December 15, Coinbase stocks recorded a sixth daily record low this month, descending to $37.70 as of 11:30 am ET. This was a 6% drop within the day and brought the Coinbase share price down by approximately 85% year to date.

Meanwhile, Bitcoin (BTC) price has plunged almost 75% since hitting its November 2021 all-time high of around $70,000.

Coinbase’s plunging share price comes only weeks after centralized crypto exchange FTX witnessed an insolvency crisis that culminated in the company filing for bankruptcy and the subsequent arrest of its founder and former CEO Sam Bankman-Fried (aka SBF).

Noteworthy, Coinbase is the largest US crypto exchange by trading volume.

Ark Invest Buys Coinbase Dips

In a webinar statement on Tuesday, Ark Invest Research Director Frank Downing said that the firm believes Coinbase is set to be a share gainer in the medium and long term. Downing stated:

“We think that over the medium to long term, while the industry is set back now, Coinbase really will be a share gainer here as momentum and trust flow away from this kind of frontier in the international world to the more trusted, more regulated exchanges.”

Downing also added that the publicly traded company could have a “moat” over competitors in the future as more stringent regulatory guidelines continue to govern the space.

“In an environment of tighter regulations, Coinbase’s standing could prove as a moat compared to some of its less regulated counterparts,” Downing added.

In July, the fund manager sold off almost 1.4 million Coinbase shares across several of its exchange-traded funds (ETFs), which at the time were worth about $79 million. In November, the investment firm made another acquisition, buying almost 800,000 shares of the same stock for its Innovation ETF (ARKK) in the days before and after FTX’s Chapter 11 filing. These facts are based on trade data.

According to Ark Invest, Coinbase is poised to benefit from the crash of rival exchange FTX despite near-term bearish sentiment in the crypto space, as the fund group recently resumed buying the stock for its largest ETF.

As of the end of September, Ark held $290.55 million in Coinbase stock, which made it one of Coinbase’s largest institutional holders, after BlackRock, Andreessen Horowitz, and Vanguard. Since then Ark has added its Coinbase position with another buy, this time more than 375,000 shares (worth around $13 million) in the week ending December 10.

According to Downing, unlike FTX, Coinbase — which is the largest publicly traded crypto exchange in the US — produces quarterly financial statements, and auditing firm Deloitte certifies that its assets are backed one-to-one.

Centralized Exchanges Move To Inspire Investor Trust

In the wake of the FTX collapse, Coinbase and other centralized exchanges (CEXs) have been quick to implement transparency initiatives or point to their existence by publishing proof of reserve (PoR) reports with hopes to ease investor fears.

In a November 25 blog, Coinbase Chief Security Officer Philip Martin said that the company was exploring more crypto-native methods to prove reserves. The US-based exchange also revealed a $500,000 developer grant program targeted at incentivizing others to do the same. Notably, the Brian Armstrong-led crypto exchange already proves its reserves by way of audited financial statements.

Rival exchange Kraken has however criticized the move by CEXs to regain customer trust, saying in a blog that some industry players have recently tried to pass off “diluted and misleading methodologies” as proof of reserves audit.

Analysts Back Self-Custody Digital Assets Against Binance CEO’s Advice

Bitcoin analyst Josef Tětek, who works at crypto hardware wallet company Trezor, has joined other industry players to reiterate the importance of self-custody digital assets. Pointing to the crash of FTX and other firms like Celsius and BlockFi, they said:

“Using exchanges and their custodial wallets is all based on trust.”

Tětek however underscored the crypto adage characteristic of Bitcoiners, “do not trust, verify”, adding that the only way to verify that you own any coins is by having exclusive control over the corresponding cryptographic keys. This is contrary to what happens in exchanges, where you are required to submit that privilege to them.

In a Wednesday Twitter space, Binance CEO Changpeng Zhao advised against self-custody, claiming that 99% of people who HODL their own crypto end up losing it.

Other renowned industry voices have however rejected CZ’s characterization of self-custody risks, calling it a “gross and irresponsible mischaracterization of relative risks.”

The statement that 99% of users will lose their money if they attempt self-custody is a gross and irresponsible misscharacterization of relative risks.

Stop mistaking wealth for wisdom or expertise. #NotYourKeysNotYourCoins

— Andreas (aantonop Team) (@aantonop) December 15, 2022

Coinbase CSO Philip Martin has however confirmed that the exchange is working toward a decentralized system where “you don’t have to trust us or any institution.”