Alternative Investment Report

Is there any real possibility of a Coinbase bankruptcy?

Alesia Haas – the Chief Financial Officer of Coinbase Global Inc (NASDAQ: COIN) once agreed to at least a “small risk of bankruptcy” on CNBC.

Six months later, those concerns are coming to life after FTX filed for bankruptcy. In her recent tweet, Genevieve Roch-Decter of Grit Capital said:

Coinbase bonds are trading at a massive discount, about 50% to par value. The bonds are yielding 16%. A yield that high is a sign that investors are worried about the company’s ability to make the interest payments.

Binance CEO added fuel to the fire

On top of that, Changpeng Zhao (CEO of Binance) recently suggested that Coinbase may be running low on reserves. To which, Brian Armstrong (Coinbase CEO) responded as:

If you see FUD out there – remember, our financials are public (we’re a public company) https://t.co/ayzN0zaqgT

— Brian Armstrong (@brian_armstrong) November 22, 2022

Nonetheless, the ever-so-alarming remarks from an industry expert did add fuel to the fire in terms of making investors more nervous.

Coinbase shares are down about 80% for the year.

Coinbase is an SEC-regulated company

Coinbase values its customers’ crypto assets at more than $95 billion and is holding another $6.5 billion for them in U.S. dollars – that’s per its latest 10-Q. Still, its revenue was down more than 50% year-over-year on low trading volumes in its latest reported quarter.

That’s concerning because Coinbase relies on trading activity to earn commissions that pay for its operational costs. In her tweet, Roch-Decter added:

There are two dimensions that concern investors: Coinbase the business. And Coinbase the exchange. The business has shrinking margins. And after what happened to FTX, which exchanges can we trust?

At writing, just over 17% of the float is shorted. The high short interest is also noteworthy when evaluating the risk of Coinbase bankruptcy. Wall Street currently has a consensus “hold” rating on the Coinbase stock.

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