Coinbase ‘in a much better position’ after cost cuts: Analyst

JMP Securities, A Citizens Company, Director of Financial Technology Research Devin Ryan joins Yahoo Finance Live to discuss the reasons for Coinbase’s big rally, crypto regulation, and the outlook for the crypto industry.

Video transcript

[AUDIO LOGO]

JULIE HYMAN: All right, let's bring back in Devin Ryan. He is director of Financial Tech Research at JMP Securities, A Citizens Company. Devin, thanks for bearing with us there and glad we got your back.

So I had just asked you what Coinbase has done to sort of right the ship here and make it well-poised, perhaps, to take advantage of any crypto rebounds. What do you think?

DEVIN RYAN: Yeah, so it's really a couple of things. One, they got a lot leaner. And we've been arguing, they need to get their cash burn down and they announced a 25% expense reduction. That's a huge deal to be in a position where they can weather really any environment. And so they announced that about three weeks ago.

And then the other things are a little bit outside of their control. You know, you just need prices to recover and volumes to recover. And what's been really encouraging to us is the fact that, Julie, as you mentioned in the lead in, you know, market cap and crypto is up like 30% over the last three weeks. Coinbase's volumes have followed that.

So what that means is that people really didn't leave the market altogether, they just moved to the sidelines. And now that prices are moving back up, engagements there. And Coinbase is seeing about $2 billion of volume a day in trading. And that compares about less than $1.6 billion in the fourth quarter. So they're seeing actually a nice bump up there and that's driving much better revenues.

BRAD SMITH: So in that stabilization story, it doesn't-- there's still kind of have this larger component. Isn't there this larger component still of regulation and what regulation comes forward to really thrust any type of confidence into the space?

DEVIN RYAN: Yeah, so regulation is obviously a big question mark. You know, our view has been that-- you know, really crypto's a-- I think an industry where both the left and the right have views and can come together here. And regulators, ultimately, in our opinion, are not gonna crush the industry. But they do need to give better rules of the road for the industry to operate.

And so I actually think that is coming, and that's gonna add clarity, and be a good thing for firms like Coinbase. The uncertainty is worse than having certainty. And so I do think we're moving closer to that and that'll be a good thing. But ultimately, you know, the company does need to be in a position where a cash burn is lower and they can operate and weather any cycle. And I think they're now in a much better position post these recent cuts to do that.

BRIAN SOZZI: Do you see them having to cut again?

DEVIN RYAN: So I think-- just to give you some context here. So at the current volumes that we're tracking in the industry, about $2 billion a day, as I mentioned, they're actually operating at about cash break-even at that level. So this is enough to sustain them. They have $5.6 billion of liquidity.

I think really the question would be, is there another exogenous event that happens that drives volumes way back down below kind of what we're all modeling? And that could be a scenario where they could cut again. They've got leverage to do it.

So we're very pleased with their willingness to, I think, get leaner. And that's something we've argued they've needed to do. So they're in a good position from here, they're cash flow break-even. You really need to see a pretty material step back in volumes from here to justify that.

BRAD SMITH: And so given the contagion events that have already taken place to this point, how does that shift some of the sentiment, even around some of the offerings that Coinbase does have in even storage, and storage or staking, how has that kind of rattled those businesses individually?

DEVIN RYAN: Yeah, so again, I was talking about a report that we put out three weeks ago, crypto needs to get serious. And the whole point of that is that there really needs to be projects and offerings in the space that have real utility versus, I think, some of the hype and in some cases even fraud that we've seen over the past couple of years here.

And so, you know, Coinbase is a leader in the space. They're gonna do things the right way. And I think this is an environment-- you know, I covered financials through the financial crisis. And the good firms that we're doing things right way actually gained market share on the other side of that. I think Coinbase is gonna be a firm like that on the other side of this environment.

But you really-- the crypto offerings themselves and the projects, you need to see real utility come through. And we highlighted in that report 70 projects that are, you know, boring, health care, and logistics, and transportation. Not the hype projects or meme projects that have gotten a lot of attention in the market. And we that's gonna be healthy for this whole space and we need to progress there over the next couple of years.

JULIE HYMAN: Bitcoin as boring, a goal to reach for, I guess. [LAUGHS] Thanks so much, Devin. Good to see you. Devin Ryan--

DEVIN RYAN: Thank you all.

JULIE HYMAN: --of JMP Securities, A Citizens Company, appreciate it.