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Silbert downplays liquidity crisis, expects $800M revenue in 2022 for DCG

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Silbert downplays liquidity crisis, expects $800M revenue in 2022 for DCG

Silbert downplays liquidity crisis, expects $800M revenue in 2022 for DCG Josh O’Sullivan · 3 hours ago · 2 min read

CEO Barry Silbert addressed the suspension of withdrawals at Genesis Global Capital and listed the company’s current liabilities.

2 min read

Updated: November 22, 2022 at 11:35 pm

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Cover art/illustration via CryptoSlate

Following rumors of potential contagion from FTX, Digital Currency Group (DCG) CEO Barry Silbert sent shareholders a memo on Nov. 22 addressing the situation surrounding Genesis’ liquidity.

A potential billion-dollar hole in the Genesis balance sheet has drawn speculation as to the future of the crypto brokerage. Moreover, Genesis is a subsidiary of DCG, giving rise to speculation that the failure of the parent company to bail out the struggling brokerage could be an ominous sign.

Genesis has failed to raise the additional funds required after the collapse of FTX. Further, Genesis held over 80 million in FTT tokens which saw a decline of 95% in November.

Speculation began after Genesis paused withdrawals of its Earn program on Nov. 16. However, Silbert said the suspension of withdrawals at Genesis’ lending arm Genesis Global Capital was an “issue of liquidity and duration mismatch in the Genesis loan book.” The CEO noted that these issues have “no impact” on Genesis’ spot and derivatives trading or custody businesses.

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In an apparent show of strength, Genesis has hired financial and legal advisers to look at “all possible options amidst the fallout from the implosion of FTX” to avoid filing for bankruptcy. A statement that built on Genesis CEO Michael Moro’s comments that “we mitigated our losses with a large counterparty who failed to meet a margin call to us.”

A spokesperson for Genesis told Bloomberg that “we have no plans to file bankruptcy imminently” on Nov. 21. However, the statement did not rule out the possibility of bankruptcy if a cash injection is not found.

Importantly, DCG has a liability to Genesis Global Capital of about $575 million, due May 2023. The money was borrowed “in the ordinary course of business,” according to Silbert. The company also has a $1.1 billion promissory note due in June 2032 due to the assumption of liabilities from Genesis after the default of Three Arrows Capital.

In a move to increase transparency amid speculation, Silbert confirmed that DCG’s only other debt is a $350 million credit facility. He also explained that DCG has only raised $25 million in primary capital and said the company is “pacing to do $800 million in revenue this year.”

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adoption

Istanbul Blockchain Week panelists hopeful on adoption of next-generation blockchain tech

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Istanbul Blockchain Week panelists hopeful on adoption of next-generation blockchain tech

Istanbul Blockchain Week panelists hopeful on adoption of next-generation blockchain tech Josh O’Sullivan · 4 hours ago · 2 min read

CEO of Elixxir and cryptography pioneer, David Chaum, expressed that the ongoing issues in centralized finance might hopefully be able to “stimulate the adoption of this next generation of technology” without the vulnerabilities.

2 min read

Updated: November 15, 2022 at 10:08 pm

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Cover art/illustration via CryptoSlate

With crypto adoption on the horizon and 20% of Turkey’s population already using cryptocurrency, Istanbul Blockchain Week 2022 panelists expressed optimism regarding the adoption of the next generation of blockchain technology despite the currently prevailing market sentiment and discussed the catalysts of metaverse success.

CEO of Elixxir and cryptography pioneer, David Chaum, expressed that the ongoing issues in centralized finance might hopefully be able to “stimulate the adoption of this next generation of technology” without the vulnerabilities.

Erhan Korhaliller with David Chaum at Istanbul Blockchain Week 2022

Chaum explained that the cryptographic techniques used to establish “very general properties” and to “do very general computation”  have become “reasonably efficient” and easy to use in our modern times.

“The fact that [they] can be widely used without being a cryptographer is gonna make a huge impact.”

Furthering the bullish sentiment of the event, COO of The Sandbox, Sebastien Borget, evaluated the deployment of Meta’s Metaverse, and what he believes are the key aspects to metaverse success.

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“What Meta hasn’t done right was to announce the Metaverse way too early. They made a very bold move to rebrand the company without having a product ready.”

Borget expressed his opinion that Meta focused too much on the technology instead of the content involved and the user experience (UX).

“The success of the metaverse will come from content, people, and technology.”

As the COO of a virtual world – where players are able to build, own, and monetize their own gaming experience – Borget explained:

“We know the strengths and weaknesses. We are not the best gaming platform in the world, but we know we can provide a fun place to socialize, interact, and easily create on Sandbox, while we work on the product to improve our weaknesses.”

Borget discussed the opportunity that creators have to be more creative and earn revenue from their creations. “It is the realization that our mission is becoming more and more concrete,” he concluded.

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adoption

Coinbase burns $546M of USD resources as it reports another quarter in the red with a 55% revenue decline

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Coinbase burns $546M of USD resources as it reports another quarter in the red with a 55% revenue decline

Coinbase burns $546M of USD resources as it reports another quarter in the red with a 55% revenue decline Liam ‘Akiba’ Wright · 1 hour ago · 2 min read

Coinbase noted that trading volume has been shifting away from the U.S. as its U.S. monthly volume was down more than 50% at the end of September compared to January.

2 min read

Updated: November 4, 2022 at 12:08 am

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Cover art/illustration via CryptoSlate

Coinbase reported its third-quarter earnings after the bell on Nov. 3, revealing a decline of 55% in revenue year-over year as Q3 revenue came in at $590.3 million, down from $1.31 billion in Q3 2021.

The company’s also recorded a net loss of $540.6 million, or $2.43 per share, versus net income of $402.3 million, or $1.62 per share, in the third quarter last year.

Assets on platform at the end of Q3 totaled $101 billion, a decline of $154 billion from Q3 2021. The company’s market share of the total crypto market capitalization also fell to 9.6% at the end of Q3 from 9.9% at the end of Q2.

Coinbase noted that trading volume has been shifting away from the U.S. as its U.S. monthly volume was down more than 50% at the end of September compared to January.

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“We believe that this volume shift is partially attributed to the perception of uncertainty that certain digital asset issuers may have about the development of a regulatory framework addressing our industry, whether by Congress or regulators.”

Headwinds ahoy

In its investor letter, Coinbase stated that it is facing “three headwinds” related to the decline in transaction volume and revenue. The macroeconomic conditions, a reduced U.S. crypto trading volume, and a competitive market maker landscape contributed to the exchange’s fall. As a result, Coinbase now relies on “non-investing products’ to retain users.

As we advance, Coinbase is “cautiously optimistic” about attaining a $500 million “Adjusted EBIDTA loss guardrail” for 2022. Further, the company is working toward the thesis that the macro environment will remain the same or even deteriorate in 2023.

Retail and institutional assets on platform increased sequentially in the third quarter by $4 billion and $2 billion, respectively. The percentage of assets held as Ethereum returned to January levels up 4%. Conversely, the portion of assets in Bitcoin fell to 39%, a drop of 5%.

As a result of the turbulent seas, Coinbase saw a reduction of $546 million in its USD resources. The total capital held by the exchange was reported at $5.61 billion, including USDC, corporate cash, money market funds, and custodial account overfunding.

Spending cash reserves

Coinbase stated that $387 million of USD resources were spent on operating activities, hedging activities, working capital for vendor payments, and restructuring expenses. A further $20 million went into investment opportunities such as new software, crypto inventory, and financing products. In addition, $42 million was spent on financing activities related to employee stock options. Finally, Coinbase recorded an additional $97 million decline in resources due to “the effect of foreign exchange rates” on corporate cash.

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At the end of the third quarter, Coinbase also revealed it holds $483 million worth of crypto assets as investments,  with a cost basis of just $290 million.

Coinbase’s share price steadily dropped as much as 12% since the market opened on Nov. 3. However, in after-hours trading, the stock is up 8.5% from its daily low.

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adoption

Coinbase reports $1.10B loss in Q2 as assets on exchange slump

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Coinbase reports $1.10B loss in Q2 as assets on exchange slump

Coinbase reports $1.10B loss in Q2 as assets on exchange slump Liam ‘Akiba’ Wright · 2 hours ago · 3 min read

Coinbase reported the biggest loss ever in Q2, losing more than $1B over the past 3 months. Assets held on the exchange also fell to just $96 million.

3 min read

Updated: August 9, 2022 at 11:14 pm

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Cover art/illustration via CryptoSlate

Coinbase Global’s second-quarter results show that the crypto exchange recorded a net loss of $1.10 billion during the period. This compares to a loss of $430 million in the first quarter and a net income of $1.61 billion in the second quarter of 2021.

Net revenue for Q2 came in at $803 million, down from $1.17 billion in Q1 and $2.03 billion in Q2 2021, according to the Aug.  9 shareholder letter.

The value of crypto assets on the exchange fell to just $96 billion in Q2 from $256 billion in Q1. A year ago, in Q2 2021, the assets on the exchange totaled $180 billion.

Source: SEC filing

Coinbase also pointed to four major crypto asset price cycles the space has seen since 2010, noting in the below graph that from the most recent peak in November 2021 to the lows in June 2022, Bitcoin market capitalization has declined 74%.

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Source: SEC Filing

The company said:

Each prior cycle has lasted anywhere from two to four years and resulted in the crypto market capitalization significantly increasing compared to the preceding cycle. Each prior cycle brought in new market participants, developers, and products that further advanced the cryptoeconomy. These cycles are evident by viewing Bitcoin prices over time on a logarithmic scale. Prior peak-to-trough declines have been 84%, 85%, and 94% historically, although these prior declines did not coincide with a broader macro downturn.

In the shareholder letter, the company compared recent data to 2020, as it believes “the best way to evaluate Coinbase through these early years of this nascent industry, is through the same lens we evaluate crypto — over a price cycle.”

From 2020 to 2022, verified users have tripled, monthly volume is up 6x, and assets on the platform have increased 4x.

Coinbase stated that “down markets are not as bad as they may seem.” It continued, “it can feel scary and near-term financials can be heavily impacted,” but it will “emerge stronger than ever before.”

While the figures may appear bearish for the US-based exchange, many in the crypto industry would agree with Coinbase’s sentiment that “crypto markets are cyclical.” While several exchanges such as Celsius and Voyager have filed for Bankruptcy this quarter, Coinbase remains bullish on its future outlook.

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The company’s monthly transacting users (MTU) only dropped 2% versus Q1.

“Despite continued market softness, we were pleased to serve 9.0 million MTUs in Q2, a decrease of 0.2 million or 2% compared to Q1.”

Coinbase noted that Bitcoin trading volume and transactional revenue both rose 7% and 6%, respectively, in Q2 vs Q1. The total volume of retail transactions fell to $46 billion from $74 billion in Q1. Institutional trading volume also fell to $171 billion in Q2 from $235 in Q1.

Further, regarding institutional engagement, Coinbase notes,

“On the institutional side, with all of the market volatility it can be easy to lose sight that both new and existing clients continued to use our platform as they embrace crypto as a new asset class.”

Coinbase states that three themes underpin its decline in trading volume;

  1. Core U.S. retail customers were less active but have not left the platform
  2. A “large amount of trading volume” took place on off-shore exchanges that can list crypto derivatives with which Coinbase does not have “product parity with.”
  3. Coinbase did not have “exposure to the significant trading volumes related to the liquidation events of $LUNA.”

While Coinbase claimed it did not have significant exposure to $LUNA and that it was an “unsupported asset,” it did list the wrapped version of the token, wLUNA; something omitted from the Shareholder letter.

The exchange also noted that it did not have any counterparty exposure to Three Arrows Capital, Celsius, and Voyager.

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Adjusting to market conditions

Coinbase also said it taking steps to cut costs in the face of “challenging crypto market conditions.”

These steps include limiting its hiring for backfills and certain positions and cutting back on paid media and incentives. The company already reduced its workforce by 18% in June.

The company is also optimizing infrastructure and professional services expenses as well as investing in teams in lower-cost regions.

The company added:

“On the expense side, we are rigorously managing our expense levels and will continue to do so. On the product side, we are executing a ‘pause, maintain, and prioritize’ approach to ensure we are focused on the highest priority opportunities”

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