Major cryptocurrency exchanges including Coinbase (NASDAQ:COIN) Global Inc. and Binance, are escalating their lending initiatives in an effort to offset declining revenues. The move comes despite warnings about potential risks to the ecosystem and increased leverage.
These lending programs encompass margin loans, client borrowing through their platforms, and direct lending to clients. The strategies, however, seem to be struggling to invigorate stagnant trading volumes. For instance, Coinbase's Q3 spot trading volumes plunged over 50% from the previous year, while Binance experienced an estimated decline of 64%, according to data from CCData.
According to InvestingPro's real-time metrics, Coinbase's market cap stands at $17.63 billion with a negative P/E ratio of -13.40. The company's revenue for the last twelve months (LTM2023.Q2) was $2580.23 million, a decline of -55.34% in growth. This data supports the notion of a struggling market, as the company's 3-month price total return for the year 2023 was -30.27%.
In August, Coinbase began permitting institutional clients to lend out their crypto assets for yields. Around the same time, Bitget started lending fiat money or cryptocurrencies against crypto collateral. Other platforms such as Bitstamp have also joined the trend, partnering with Finland-based Tesseract to facilitate customer lending to borrowers like market makers.
Despite the new initiatives, trading volumes remain significantly lower than last year's levels. Volumes are nearly 90% down since the collapse of Sam Bankman-Fried's FTX in November last year.
The exchanges assert that they have learned from past mistakes. Some firms now only facilitate fully collateral-backed loans or accept stablecoins or major tokens like Bitcoin as backing. Collaborating with third-party loan providers like Tesseract allows platforms to sidestep direct balance-sheet risk.
InvestingPro Tips suggest that Coinbase's stock price movements are quite volatile and the company has not been profitable over the last twelve months. The company's price has fallen significantly over the last three months, a trend that aligns with the declining earnings per share. For more insightful tips, visit InvestingPro where you can find six additional tips about Coinbase.
The ramping up of lending services could also attract regulatory scrutiny from bodies such as the U.S. Securities and Exchange Commission. The question remains whether these lending ventures are worth the potential issues.
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