Coinbase is approaching its tenth year, with Q1 financial report showing a loss after profit, stock price hitting bottom, CEO clarifies no bankruptcy risk.

Coinbase has recently been facing difficulties, with its stock price hitting a new low and its financial performance weakening. Furthermore, unreasonable terms regarding user assets were discovered in its financial reports: "In the event of the exchange's bankruptcy, user assets may be affected by the bankruptcy proceedings." The community immediately brought back the popular saying "Not Your Keys, Not Your Coins," but Coinbase's founder issued an apology to address the situation, stating that they will update the terms for retail investors.

Q1 Financial Report Disappointing

According to the latest financial report, key figures are as follows in USD:

• Revenue: 1.164 billion, a decrease of 53.21% compared to the previous quarter.
• Net Loss: 430 million, EBITDA down to 20 million USD.
• Operating Expenses: 1.72 billion, an increase of 9.18% compared to the previous quarter and a 111% increase year-over-year.
• Trading Volume Retail/Institutional: 309 billion 740/2,350, a decrease of 43.5% compared to the previous quarter.
• BTC trading volume reclaimed the top spot from ETH since Q3, with BTC:ETH at 24:21.

Coinbase noted that the decline in trading volume and revenue compared to Q4 was expected, believing that the hot market conditions of last year were not sustainable. Therefore, they remain focused on long-term operations and can concentrate on product development in areas such as NFTs and DeFi during market downturns, showing confidence in the future.

Despite Coinbase entering its tenth year this month, net income has turned from profit to loss for the first time since 2021, and the stock price has fallen by 78.65% since its listing last year.

To make matters worse, Coinbase has been exposed by the crypto community for unreasonable terms regarding user assets in its financial reports.

Unreasonable Terms

In the Form 10-Q report submitted to the SEC, Coinbase pointed out that:

1. Since custodial assets may be considered bankruptcy assets, in the event of bankruptcy, the encrypted assets custodied on behalf of users may be affected by the bankruptcy process, making such users unsecured creditors of Coinbase.

2. Coinbase's insurance coverage for certain events may be limited and may not cover such losses. In such a scenario, Coinbase may be liable for all losses, which could exceed all of its assets. The ability to provide insurance is also limited by the underwriting standards of insurance companies, and any losses of user cash or encrypted assets may not be covered by insurance.

CEO's Response

Coinbase CEO Brian Armstrong clarified in a lengthy post on Twitter. He stated:

"We do not have bankruptcy risk, but in accordance with SEC accounting guidance Staff Accounting Bulletin | SAB 121, publicly traded companies are required to disclose risks when third parties hold encrypted assets."

"The SEC's requirements are reasonable. These regulations have not yet been proven to apply to encrypted assets in court, and there is a possibility that courts, although unlikely, may decide to treat user assets as part of the exchange's bankruptcy proceedings, even if it harms consumers."

"We should have updated our retail terms earlier, and we did not proactively communicate when adding this risk disclosure. I am deeply sorry, and this is a good learning opportunity for us."

Armstrong also took the opportunity at the end of the post to promote their self-custody wallet, "Coinbase Wallet," emphasizing that users can choose the best solution according to their needs.