Coinbase sinks as Goldman downgrades to sell after 75% rout

GOLDMAN Sachs Group analysts downgraded Coinbase Global to a sell rating as the crypto winter continues to take its toll on the struggling digital currency exchange.

Shares of the firm slumped as much as 11 per cent to US$56.02 on Monday (Jun 27), putting them on track to extend their 75 per cent decline this year with Bitcoin now at less than half its value from just 6 months ago. Goldman analyst William Nance cited the "continued downdraft in crypto prices" and the broader drop in activity levels across the industry.

"We believe Coinbase will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up," Nance wrote in a note on Monday.

Coinbase quickly became the equities market poster child for the boom in digital currency prices last year with the largest US cryptocurrency exchange seeing its value surge above US$75 billion as Bitcoin hit a record high. Since then, the company has been dogged by a laundry list of issues including declining revenues and trading volumes as the broader crypto market endures one of its worst selloffs in history. Goldman Sachs was one of the Wall Street banks that advised Coinbase on its direct listing in April 2021.

As of Friday's close, the company was valued at less than US$14 billion. Coinbase has 20 buy ratings, 6 holds and 5 sell recommendations, according to data compiled by Bloomberg. The average analyst share-price target sits at about US$117, its lowest level on record, but more than 100 per cent above where it currently trades.

Equity investors aren't the only ones souring on Coinbase. The firm's bonds have also come under pressure, with its senior unsecured bonds maturing in 2031 among the biggest decliners in the US high-yield market on Monday.

Increased competition from other firms has also weighed on the crypto exchange. Earlier this month, Binance.US revealed that it would be offering zero-fee trading for Bitcoin and said it had plans to also eliminate fees on other tokens in the future. Coinbase also announced this month that it would be laying off 18 per cent of its workforce as it attempts to reel in operating expenses that ballooned to a record US$1.7 billion in the first quarter.

"Coinbase faces a difficult choice between shareholder dilution and significant reductions in effective employee compensation, which could impact talent retention," Nance said. BLOOMBERG