For believers in the crypto cult, FTX’s demise is a severe test of faith. To pass, you have to believe that the collapse of the digital platform has strengthened the sector. Former chief executive Sam Bankman-Fried must be dismissed as a false prophet.
However, the plummeting price of bonds issued by Coinbase, a New York-listed crypto platform, suggests this is wishful thinking. FTX’s woes stemmed from dire mismanagement. Falling prices for the debt issued by Coinbase show that even a crypto business with trappings of Wall Street respectability carries high risk.
Coinbase notes maturing in 2028 trade at just over 58 cents on the dollar, down from 94 cents a year ago. A convertible bond has fallen to distressed levels, trading at 55 cents on the dollar.
Coinbase appeared to offer investors the chance to invest in the crypto trading boom rather than digital assets themselves. But fear is infectious. The collapse of tokens such as luna and the end of FTX has hammered the entire sector.
Bitcoin’s price has more than halved this year and at present sits at about $17,000. Coinbase’s third-quarter results reflected the darkening outlook. The value of trading volumes fell more than 50 per cent year on year to $159bn, contributing to pre-tax losses of $545mn.
The market worth of Coinbase has fallen 80 per cent to $10bn over the past year, compared with a 66 per cent decline in the Nasdaq. Its market cap is equivalent to just three times forecast 2022 sales, down from 25 times, according to S&P Capital data.
Coinbase is a sturdier proposition than Bankman-Fried’s fantasy-driven ventures. The business lacks the same conflicts of interest. As of September 30, it held $5bn in cash and cash equivalents.
True believers see the “crypto winter” as a time of tribulation. Secular investors, notably those in Coinbase bonds, are right to be more cynical. The securities are beginning to look more like relics of a bygone era than the capital base of a new kind of stock exchange.
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