Coinbase Global (COIN) reported second-quarter results after market close on Tuesday that handily exceeded estimates, with a surge in user growth and trading volume helping boost results despite a volatile stretch of trading for digital currencies. Shares gained more than 3.5% in late trading immediately following the results.
Here were the main results from Coinbase’s report, compared to consensus data compiled by Bloomberg:
- Revenue: $2.23 billion vs. $1.85 billion expected
- Adjusted EBITDA: $1.15 billion vs. $961.5 million expected
A jump in user growth and activity on the platform helped fuel Coinbase’s results for the June quarter. Trading volume rose to $462 billion, up from the $335 billion posted for the fiscal first quarter, and coming in better than the $381.6 billion expected. Retail monthly transacting users increased by 44% compared to the first quarter to 8.8 million, and total verified users grew to 68 million from 56 million.
Heading into earnings results on Tuesday, Coinbase shares have traded choppily since the stock’s direct listing in April, and have largely languished below their opening price of $381 apiece amid a broader drop in cryptocurrency prices.
Bitcoin prices (BTC-USD) hit an all-time high of more than $64,000 around the time of Coinbase’s public debut, but have since slid to a year-to-date low of less than $30,000 as of mid-July. Bitcoin, the largest cryptocurrency by market capitalization, was trading around $45,000 as of Tuesday afternoon.
“Q2 illustrated the volatility we have anticipated in these still-early days in the cryptoeconomy,” Coinbase said in its letter to investors. “As volatility and crypto asset prices are highly correlated with trading revenue, the crypto market environment heavily influenced our Q2 financial results.”
The drop in the prices of bitcoin and other major tokens like ethereum (ETH-USD) coincided with a regulatory crackdown against cryptocurrencies and mining in China, as well as increasing concern over digital currencies’ mainstream adoption. Tesla CEO Elon Musk said in May the electric carmaker would no longer accept bitcoin as payment for vehicles. However, Tesla (TSLA), along with a number of other companies including Square (SQ) and PayPal (PYPL), still hold bitcoin on their balance sheets.
Weakening cryptocurrency-related results in these other companies’ businesses during the second quarter presaged a potential slowdown for Coinbase. Bitcoin comprised $2.7 billion of overall revenues for Square in the second quarter, down from $3.5 billion in the first quarter of 2021. And Tesla, for its part, booked an impairment of $23 million related to bitcoin in its second quarter, after posting a positive impact of $101 million from selling some of its bitcoin holdings in the first quarter of the year.
For Coinbase, volatility in the prices of major cryptocurrencies did manifest in a diversification of trading volumes away from bitcoin. About 24% of second-quarter trading volume was related to bitcoin, down from 39% in the first quarter. Meanwhile, ethereum trading volumes surpassed bitcoin trading volumes on Coinbase for the first time ever, “driven by growth in the DeFi and NFT ecosystems (where Ethereum is an important underlying blockchain),” Coinbase said in its letter to investors.
Going forward, regulatory risks also remain a concern for Coinbase and other crypto platforms that rely heavily on trading-related fees. Last week, Securities and Exchange Commission Chair Gary Gensler likened the crypto trading environment to “the Wild West,” and suggested a number of trading platforms were offering illicit, unregistered securities. And on Monday, the Wall Street Journal reported that former SEC director Brett Redfearn had resigned from serving as head of Coinbase’s capital markets group after just four months, reportedly due to a strategic shift at the crypto platform.
And elsewhere in the U.S. regulatory landscape, legislative risks also remain. On Monday, a proposal by a bipartisan group of senators that would limit the scope of oversight in the cryptocurrency industry ultimately failed.
The new proposal, which would have been an update to a provision in the Biden administration’s $550 billion infrastructure bill, would clarify the rules over who was considered a broker of cryptocurrencies and who would need to report transactions to the Internal Revenue Service, making sure not to include other players in the crypto space like software developers or those that validate transactions into the new reporting requirements. The language for this provision in the bill now excludes these clarifications, drawing the ire of those in the cryptocurrency and adjacent industries, including from Square CEO Jack Dorsey.
