Buy and hodl—that’s been the mantra of cryptocurrency investors since a devotee first made the typo in a Bitcoin forum in 2013. But recently all that holding, plus diminished interest as cryptocurrency prices have crashed, has been bad news for exchanges.
Coinbase Inc., one of the world’s largest crypto exchanges, has taken an even bigger hit than the broader market, according to data collected by fintech-focused venture firm Tribe Capital. Tribe said it found the number of monthly U.S. customers buying and selling on the platform in September declined about 80 percent from December, when the price of Bitcoin reached its all-time high of nearly $20,000. Over that same period, Bitcoin fell about 60 percent. A representative for Coinbase declined to comment.
Those numbers echo the findings of research firm Diar Ltd., which said that Coinbase’s U.S. dollar volumes had also fallen 80 percent from the fourth quarter of 2017 to the third quarter of 2018.
Tribe compiled the data by analyzing credit card and other identifiable bank transfers. The resulting numbers are not comprehensive and only include U.S. transactions, but still capture overall trends, Tribe said. Other retail-focused exchanges likely saw similar declines. Tribe is an investor in SFOX, a smaller exchange focused on institutional investors, and a Coinbase competitor.
Tech website Recode reported this month that the San Francisco-based Coinbase is raising $500 million at a $8 billion valuation. If it closes that funding round, it would quintuple its valuation from last year, before cryptocurrency’s 2017 bull run. The news site Axios later reported that Coinbase’s valuation would have been significantly higher had cryptocurrency prices not nosedived.
Facing the slump, many exchanges are trying to wean themselves from dependency on the crypto markets. Coinbase has been developing several tools like custodial services where investors can store large amounts of digital currencies, as well as enhanced trading capabilities, such as risk management and margin trading, which allows customers to use borrowed money. However, its nascent professional businesses have been slow to take off, according to multiple people familiar with the matter, who asked not to be identified because the details are private. These people argued that both the bear market in crypto and the small pool of institutions actively trading in the space have made the transition difficult.