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As Bitcoin Prices Continue to Fall, Investors are Worried that the Collapse of FTX Could Lead to Even More Losses

Coinbase shares fell more than 8% on Monday, extending a slide that has pushed the crypto exchange to its lowest level since its market debut in April 2021. The drop comes as bitcoin's slump continues and investors worry about contagion from FTX's spectacular collapse earlier this month.

November 21, 2022
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Coinbase shares fell more than 8% on Monday, extending a slide that has pushed the crypto exchange to its lowest level since its market debut in April 2021. The drop comes as bitcoin's slump continues and investors worry about contagion from FTX's spectacular collapse earlier this month.

Nineteen months after going public, Coinbase has lost over a quarter of its value in the past four trading sessions and is now worth less than $10 billion. This represents a significant decline from its market cap of over $85 billion when it first went public.

There are questions about the health of FTX's rival exchanges, which has caused some companies to temporarily suspend trading and others to prepare for potential bankruptcy filings. Mizuho analysts wrote that daily volumes in the industry are trending 30% to 40% below their average for the year.

Coinbase CEO Brian Armstrong said in an op-ed for CNBC on Nov. 11 that his company does not have "any material exposure to FTX." However, he expressed "sympathy for everyone involved." Coinbase shares have declined by more than 83% so far this year.

"The potential for customer loss is always stressful in our industry, and a lot of people are losing money because of FTX's struggles," Armstrong said.

Bank of America downgraded Coinbase on Friday, citing the risk of contagion for the cryptocurrency exchange platform. The bank said that even though Coinbase is not "another FTX," the platform could still be affected by wider industry problems.

"However, this does not mean that they are immune from the wider impacts within the cryptocurrency ecosystem," wrote Jason Kupferberg from Bank of America.

Before FTX's decline, the market was in the midst of a crypto winter that had sent prices of bitcoin and ethereum tumbling and forced a number of firms into bankruptcy. Earlier this month, Coinbase reported a revenue plunge of more than 50% from a year earlier, and a loss of $545 million. In June, the crypto exchange slashed 18% of its workforce.

The recent sell-off in the cryptocurrency market has been even more extreme, with bitcoin falling more than 3% on Monday to its lowest level in over two years.

Ethereum fell by over 6% on Monday, while Solana, a coin that was touted and backed by FTX founder Sam Bankman-Fried, has lost more than two-thirds of its value in the past two weeks.

In just a few days, FTX's valuation plummeted from $32 billion to bankruptcy as liquidity dried up, customers demanded withdrawals, and rival exchange Binance tore up its nonbinding agreement to buy the company. FTX filed for Chapter 11 bankruptcy protection on November 11.

Bankman-Fried said that the company's assets were in good condition just two days before he needed a rescue. He has since said in tweets that he is working to recover deposits for the company's customers.

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