Coinbase Keeps Expanding Despite Financial, Regulatory Woes

These are dark days for cryptocurrencies, with a string of bankruptcy filings, lawsuits and investigations, not to mention the federal indictment of one-time crypto mogul Sam Bankman-Fried.

But the second largest crypto exchange by volume, embattled Coinbase, is still looking at expansion, even though it is dogged by numerous problems from U.S. regulators and depressed crypto prices. The digital bourse’s corporate parent, Coinbase Global Inc., lived up to its name Tuesday by launching an international derivatives exchange. This brings it into competition with the No. 1 crypto exchange, Binance.

Institutional investors generally have crypto exposure, but mainly it is small. One exception was Canadian pension fund Caisse de dépôt et placement du Québec, which last year suffered a 7.9% loss in its fiscal first half, partly due to crypto’s decline.

Coinbase will offer futures outside the U.S. to crypto traders. These are popular vehicles to hedge against losses or speculate on prices of the virtual coins. In the crypto realm, traders prefer permanent futures, which do not expire as conventional futures do, since the permanent futures permit traders to maintain their protection without constantly renewing contracts. The futures are available using up to five times leverage, settling in USD Coin, a stablecoin issued from Circle Internet Financial, a Coinbase partner.

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The company brushes aside its detractors. Speaking at a Milken Institute conference on Tuesday, Emilie Choi, Coinbase’s president and chief operating officer, insisted that the 11-year-old company has surmounted five rough spells for crypto—which she called “crypto winters”—and emerged in good shape. “We made a lot of acquisitions” amid those downturns, she said. In March, Coinbase bought One River Digital Asset Management, a digital asset manager and investment adviser, for an undisclosed sum.

Coinbase had been profitable and enjoyed growing revenue amid the popularity of digital denominations. The company’s 2021 debut on Nasdaq was a huge success, with shares ballooning more than 30% on the first day of trading. Its Super Bowl ad in February 2022 was clearly the most popular (the 60-second spot centered on a sweepstakes for three $1 million prizes, paid in Bitcoin).

The company’s fortunes soured last year with the decline of crypto. Bitcoin, from its November 2021 peak, lost some 80% of its value over the following 12 months. Lately, it has recovered to a degree but remains 56% below its apex.

Coinbase stock is down to one-seventh of its late-2021 value and has not perked up. Revenue has plunged. The company reported a net loss of more than $1 billion in last year’s second quarter. Red ink has dogged it ever since, and Wall Street estimates show it losing money when it reports earnings on Thursday. In fact, projections are that it will remain unprofitable through at least next year.

Meanwhile, Coinbase has come under federal investigation. The Securities and Exchange Commission has served it with a Wells Notice, informing the company that its business practices were under scrutiny. At the moment, exactly what the SEC is looking for is not clear. Coinbase responded that the enforcement action would “fail on its merits.”

Related Stories:

Coinbase Acquires One River Digital

Crypto Exchange Coinbase Expands into Institutional Market

Coinbase Has a Splashy Debut, Bitcoin Is Soaring … But Fund Managers Are Downbeat

Tags: Binance, Bitcoin, Caisse de dépôt et placement du Québec (CDPQ), Coinbase, Cryptocurrency, Earnings, Emily Choi, Futures, red ink, revenue, Sam Bankman-Fried, SEC, Wells notice

U.K.-based Yorkshire and Clydesdale Bank Pension Scheme has signed a pension risk transfer deal for approximately £1.6 billion ($2 billion) worth of liabilities with Pacific Life Re International Ltd. and Zurich Assurance Ltd.

The pension fund said the agreement is intended to provide long-term protection to its participants against rising costs that result from retirees and their dependents living longer than expected.

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The longevity swap insurance policy is structured as an insurance arrangement between the pension fund’s trustee and Zurich Assurance and a back-to-back reinsurance agreement between Zurich Assurance and Pacific Life Re using Zurich Assurance’s pass-through structure. Under the pass-through structure, Pacific Life assumes 100% of the longevity risk associated with the approximately 9,000 plan members, and the trustee and Pacific Life take on mutual credit risk exposure to each other. The arrangement will form part of the pension plan’s investment portfolio and will provide it with income if members live longer than currently expected.

Inder Dhingra, chairman of the Yorkshire and Clydesdale Bank Pension Scheme, said in a release that the longevity swap “will provide significant protection for our members against the costs associated with future increases in life expectancy.”

WTW’s Sadie Scaife, the lead adviser to the plan’s trustee, said in a statement that the deal was negotiated and implemented during significant market volatility, which “goes to show that longevity swaps continue to be an effective risk management option for pension schemes,” adding that “there is strong appetite in the reinsurance market for longevity risk.”

According to data from Legal & General, the total market volume for the U.K. pension risk transfer market declined to £26 billion in 2022 from £30 billion in 2021. Nevertheless, it was the fourth consecutive year the market topped £25 billion and is estimated to be the fourth-largest year on record.

Legal & General expects increased demand for pension risk transfer deals in 2023, noting an increase in the number of pension plans approaching the insurance market and that the pipeline this year is the busiest it has seen.