‘Treacherous path’ ahead for crypto investors

There is an obvious flipside to the optimism of Coinbase Ireland’s new boss Cormac Dinan about the company and the broader industry.

The former Deloitte Ireland director told The Irish Times this week that Dublin is on a shortlist of locations to potentially become the crypto exchange’s new MiCA (Markets in Crypto Assets) hub once the wide-ranging legal framework for digital assets is signed off on by the EU later this year. That could, in Dinan’s estimation at least, eventually result in an “uplift” in Coinbase’s Irish staffing numbers somewhere down the line.

“Essentially,” Dinan said, “we will have more to do from a regulatory perspective. So yeah, I do see a bit of an uplift in terms of jobs above what we have today and I think we will probably know in the next couple of months.”

The trouble is that even a “couple of months” is a long time in crypto at the moment. It must be said that Coinbase appears to be better positioned than many other big players in the industry to weather the storm that has roiled digital markets over the past 12 months. It had $5 billion in cash and equivalents at the end of the third quarter of last year, according to its results for that period.

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Crucially, however, these results predate the collapse of FTX last November and the arrest of its founder, Sam Bankman-Fried, on fraud charges, a pivotal moment that sent shock waves across the sector. It also sent a lot of small-time retail investors running for cover, a problem for Coinbase, which derives a chunk of its income from fees charged to customers who use the platform to trade coins.

On Tuesday when Coinbase publishes its fourth quarter and full-year results for 2022, we’ll be able to assess the damage. But despite the fact that Coinbase’s shares have surged so far this year, in line with a broader pickup in the sector, analysts at a US investment bank this week downgraded their outlook for the stock, citing the “increasingly treacherous” near-term path for the sector.

The message is that any and all optimism about the sector should be taken with a large pinch of salt at the moment. This is particularly the case, given the tune that US regulators are humming about crypto at the moment.