When a large number of customers HODL cryptocurrencies, they pose problems for crypto exchanges, which thrive on high trading volumes. Even the bigwigs in the crypto exchange industry are not immune to this risk. Coinbase in the US is going through the same trouble. A new study is claiming that the active user count for Coinbase has decreased by a whopping 80 percent.
What Went Wrong With Coinbase?
Coinbase’s user base seems affected by the slumping prices of cryptocurrencies. According to data collected by Tribe Capital, a fintech-focused venture firm, Coinbase’s active users have declined by 80 percent between Dec. 2017 and Sept. 2018. Research firm Diar also had similar findings a few days ago, when it said that US dollar volumes on the exchange had fallen by 80 percent between Q4 2017 and Q3 2018.
Diminished interest in cryptocurrencies could be one of the reasons behind the change. The legal uncertainty around digital coins in the US is another possible reason. Also during bearish times, people who are looking for asset valuation appreciation do not prefer to sell or actively trade. Consequently, exchanges face a liquidity problem, and their users vanish from the markets.
However, the decrease in the active user base doesn’t suggest that Coinbase is dead. The exchange is doing good and has recently worked extensively on its institutional offerings. Its users may be temporarily keeping out of the market, waiting for another bullish run.
Where Does Tribe Collect Its Data?
Tribe, an investor in SFOX, a small exchange dedicated to institutional investors, compiled data available from some identifiable bank transfers and credit card transactions. It noted that the resulting numbers are limited to US transactions only and are not comprehensive. However, they do represent the overall trend. Retail-focused exchanges have faced similar problems.
A few days ago, tech website Recode reported that Coinbase is raising another $500 million at an $8-billion valuation. The valuation could have been significantly higher if crypto prices had not dropped. Still, the valuation is 5x as high compared to last year, before crypto’s bull run began. Exchanges are already moving into different offerings. Coinbase, for example, is now providing institutional and custodial services. Gemini exchange, run by the Winklevoss twins, has launched its own stablecoin, the Gemini Dollar (GUSD).