Coinbase Targeted In Bear Cave Report: Why Increased Competition, Brian Armstrong's Leadership Could Be Bad For Business

Cryptocurrency exchange Coinbase Global (NASDAQ: COIN) is the latest subject of a bearish report from The Bear Cave, a subscription newsletter service that says it exposes “bad companies.” Here’s the highlights of the report.

What Happened: The report highlights the key points of Coinbase losing over $1 billion in the last reported fiscal quarter and what could happen if the company goes bankrupt.

Bear Cave said that Coinbase warned that if it declares bankruptcy, “customers could be treated as our general unsecured creditors.”

The report also highlights increased competition in the crypto space and “failing leadership.”

Among competitors in the space, Bear Cave name checks many crypto specific platforms like Binance, Crypto.com and FTX, along with stock trading platforms like Robinhood Markets (NASDAQ: HOOD), WeBull, eToro and others that also allow crypto transactions.

“Two days ago, Schwab, Citadel Securities, Fidelity’s Digital Asset division and Virtu Financial formed EDX Markets, a new crypto exchange,” the report said.

“Because many of Coinbase’s new competitors have services beyond cryptocurrency trading, they can offer crypto trading at no cost as a loss leader to attract new users.”

FTX is increasingly a competitor to Coinbase, according to Bear Cave, with FTX CEO Sam Bankman-Fried saying FTX has higher daily trading volume and volume per user.

“FTX has led crypto’s takeover of sports, launched viral ad campaigns with Tom Brady and last week announced a partnership with GameStop.”

Bear Cave On Coinbase's C-Suite: Coinbase CEO Brian Armstrong is mentioned as a potential negative for Coinbase in the Bear Cave report. Comments from Armstrong in July 2022 suggest he isn’t very open to feedback, the report said. 

“Most of the best leaders are people who can act when they believe they are doing something net positive for the world and humanity, and they actually don’t really care if they piss off some portion of the people,” Armstrong said.

A Super Bowl commercial Coinbase aired that Armstrong took credit for was later a viral story when an ad agency said they came up with the idea for the commercial.

The report makes mention of bad workplace management and a petition against Coinbase executives, which Armstrong publicly said was “really dumb on multiple levels.”

Related Link: Coinbase Q2 Earnings Highlights: Revenue And EPS Miss, Company Remains Optimistic

The Backdrop At Coinbase: The report from Bear Cave comes as Coinbase shares have struggled in 2022 on the heels of a major cryptocurrency bear market. Coinbase shares are down 69% year-to-date in 2022. 

A highly anticipated NFT marketplace that launched earlier this year was less successful than expected, which was also highlighted in Thursday's report.

“The Coinbase NFT marketplace that launched in April 2022 was labeled a ‘resounding flop’ after averaging around $37,000 in daily volume in the first three months – about 0.05% of the volume of competitor OpenSea,” Bear Cave said.

The bearish report from Bear Cave follows famed short seller Jim Chanos taking on the company earlier this year.

“Coinbase is what we would call one of the bubble stocks,” Chanos said.

The report from Chanos highlighted investor enthusiasm, with Coinbase being one of the few publicly traded cryptocurrency pure plays.

“We think as competition increases amongst the exchanges, you’re going to see fee compression and as it is Coinbase will probably not be profitable this year.”

COIN Price Action: Coinbase shares were down 1.04% to $77.988 on Thursday versus a 52-week trading range of $40.83 to $368.90. Shares went public in April 2021 at an opening price of $381.