Square may be riding high after delivering some blockbuster results in Q1, but the picture is looking less rosy for Coinbase.
The exchange, which listed on the Nasdaq to much fanfare in the middle of April, has seen its share price plunge in recent weeks.
As of Thursday’s close, COIN shares were worth $256.76 — 32% lower than their value when trading opened to the public.
All of this means Coinbase stock is just a few dollars away from falling underneath the reference price of $250 that was set.
The dramatic gains enjoyed by cryptocurrencies including Bitcoin and Ether is likely to be exceedingly good news for Coinbase when it unveils its Q1 results next Thursday.
But there’s a bigger problem at play here: A lot of competition in the cryptocurrency space — something that could eat into Coinbase’s market share and affect profitability.
In the run-up to the direct listing, some analysts had expressed concern that the retail-focused platform would need to embark on a “race to the bottom” when it came to transaction fees in order to remain competitive. (Coinbase CEO Brian Armstrong said at the time that he didn’t think this was a concern in the short or medium term.)
Nonetheless, Dan Dolev of Mizuho Securities recently wrote in a note to investors:
“With over 80% of total revenue reliant on retail transaction fees, significant user overlap with PayPal and Square’s Cash App, and high user sensitivity to transaction fees, the specter of downward pressure on commissions is a concern.”
This may overlook the fact that Coinbase offers a greater range of cryptocurrencies than PayPal and Square — and allows them to do more with their crypto.
Another factor that shouldn’t be discounted lies in how Bitcoin has been struggling to find its footing in recent weeks. The price of $56,035 at the time of writing is 13.5% below the all-time high of $64,683.10 that was set back in mid-April.