COIN: Will the FTX Fiasco Drag Shares of the Crypto Exchange Lower?

Earlier this month, Coindesk accessed a leaked balance sheet of Alameda Research which showed $3.66 billion in unlocked FTT. Alameda Research is a trading firm owned by Sam Bankman-Fried, who is also the CEO of FTX - the second-largest crypto exchange globally.

Alameda’s total assets on its balance sheet stand at $14.6 billion, which includes the unlocked FTT. Alameda also has $8 billion in liabilities, a majority of which are loans, and $2.16 billion of these loans are collateralized by FTT.

FTT is the token issued by the FTX exchange, which allows users to benefit from a discount on trading fees on the crypto platform. CoinDesk explains that Alameda has high exposure to a token invented by a sister company and not an independent asset such as a stablecoin or even a market-leading cryptocurrency.

FTX files for bankruptcy

Once the details were made public several investors, including Binance, liquidated their FTT holdings due to the unusually close association between FTX and Alameda Research.

In a Cointelegraph report, Mike Burgersburg, an independent market analyst for the Dirty Bubble Media Substack, states, “Alameda will never be able to cash in a significant portion of FTT to pay back its debts.”

However, Alameda CEO Caroline Ellison emphasized, “The balance sheet breaks out a few of our biggest long positions we obviously have hedges that aren’t listed. Given the tightening in the crypto credit space this year, we’ve returned most of our loans by now.”

But, these statements did not hold true, and FTX soon filed for bankruptcy. Additionally, over $600 million has been hacked from FTX, wiping off billions of dollars in wealth in less than ten days. 

The lack of regulation surrounding the crypto market continues to haunt investors and will have a domino effect on other participants of this highly disruptive space too. For example, shares of Coinbase (NASDAQ: COIN), now the second-largest crypto exchange globally, have slumped by close to 25% in the past month. Will COIN stock price move lower by the end of 2022?

What next for COIN stock price and investors?

Coinbase went public in April 2021, and the stock touched a record high of $355 last November. Currently, COIN stock is priced at $57, valuing the company at a market cap of $15 billion.

Yes, selling pressure on Bitcoin and other cryptos has intensified in the last two weeks. However, the collapse of FTX will increase investor confidence in Coinbase, which is regulated under the SEC.

Coinbase is the largest crypto exchange in the United States and would be under pressure if the previously announced merger between Binance and FTX had gone through. As Binance and FTX have a large presence in international markets, the expansion plans of Coinbase would also be dampened, at least in the near term. 

The stock price of Coinbase will still be tied to the performance of Bitcoin and Ethereum, the two largest cryptocurrencies in the world. It will crush the broader markets in a bull run and grossly underperform when investor sentiment turns bearish.

But Coinbase has successfully diversified its revenue stream in 2022. Last year, 88% of total sales originated from transaction fees. As trading volumes are higher in bull runs, Coinbase managed to increase sales to $7.83 billion in 2021 from just $1.27 billion in 2020. 

However, Coinbase also generated $101.8 million from interest income in Q3, an increase of 1,100% year over year. In the year-ago period, the company’s interest income stood at $8.4 million. So, interest income accounted for 18% of Coinbase sales in Q3 and is fast gaining momentum.

Coinbase's leadership position and its widening ecosystem make COIN stock a top long-term bet, especially if you are bullish on crypto.

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