Coinbase confirms crypto issues and uncertainties
It is not good to be a crypto investor or a cryptocurrency exchange in 2022.
The digital asset industry is going through one of its worst times since the rise of bitcoin in January 2009.
The market has fallen sharply by $2 trillion compared to November’s record high of $3 trillion, according to data firm CoinGecko. Bitcoin (BTC), the most popular cryptocurrency, has lost more than 69% of its value since reaching a record high of $69,044.77 on November 10, 2021.
At the same time, hacks have reached an all-time high, according to blockchain security firm Chainalysis, which is helping to undermine the mass adoption of cryptocurrencies.
Large net loss
In addition, there are regulatory uncertainties in the US, where regulators still prefer to legislate more by sanctioning than by establishing a clear framework.
Coin base (COIN) one of the most important players in the sector, has just confirmed all these accidents that are not going away.
The platform posted disappointing results in the third quarter. Quarterly revenue fell 53.4% year over year to $576 million, according to a statement. What is striking is to see that the revenue is only decreasing every quarter compared to the previous quarter. In Q2, Coinbase generated $803 million in revenue, which was already down 31% from $1.2 billion in Q1 revenue.
The firm also confirmed another trend: it is still not making money since January. In the third quarter, Coinbase recorded a net loss of $545 million, halved compared to the second quarter. This reduction in loss is due to the company being able to drastically reduce costs by 38% over three months.
In June, the company cut 18% of jobs, or 1,000 people were made redundant.
In the third quarter of 2021, the company was profitable, with a net profit of $406 million.
“Q3 was another tough quarter,” the company said. A number of macroeconomic factors – consumer prices grew at the fastest rate in 40 years and the Fed Funds rate hit a 14-year high – and geopolitical factors – notably the Russia/Ukraine war – have weighed on financial and crypto markets throughout. 2022.”
“While crypto markets have not always correlated with macroeconomic conditions, we are seeing the broader risk appetite correlate with movements in crypto prices this year.”
The firm continued: “In addition to average crypto prices being lower, they remained relatively contained in Q3. As a result, volatility in crypto assets – a key driver of our retail volume – reached its lowest point in Q3 since 2020.”
Coinbase’s user base has been in sharp decline since January. The company ended 2021 with a bang, with 11.2 million monthly transaction users (MTUs) in the fourth quarter. The figure fell to 9.2 million MTUs in the first quarter of 2022 and then to 9 million MTUs in the second quarter before falling to 8.5 million MTUs in the third quarter ended September 30. For the current quarter, Coinbase says it will be “just under” 9 million MTUs.
Retail investors have not left
The decline in users is reflected in revenues. Revenue from transactions carried out by private investors fell to $346.1 million, compared to $1.02 billion in the third quarter of 2021. Trading volume was $159 million in the third quarter from $327 million in the same period a year earlier.
Coinbase said it expects “lower trading volume and a similar number of MTUs compared to our third quarter results” in the fourth quarter.
Coinbase shares have fallen 77% since January.
While Goldman Sachs analysts welcome the group’s desire to continue cutting costs, they remain concerned about the decline in trading volume and the firm’s pessimism.
“We remain cautious, as the company reiterated several times its expectations to manage the business to negative EBITDA in the near term without a major change in the market environment, which we believe is unlikely to result in recovery in sentiment given the continued decline in crypto trading volumes in in 4Q,” Goldman Sachs said in a research note.
“Additionally, COIN management discussed the ongoing regulatory uncertainty in the crypto ecosystem, which is limiting the Company’s ability to roll out new products, and which the Company believes is driving retail trading volume to offshore trading venues.”
EBITDA refers to earnings before interest, taxes, depreciation and amortization, which helps investors measure the financial health of a company.
Indeed, the platform has said it “will operate within the $500 million adjusted EBITDA guidance we previously communicated” if market conditions do not worsen.
But Coinbase has identified a factor that could prove very positive in the future.
Private investors have not left. If they trade less, they kept their digital assets on the platform: “We see this as a sign that our clients, on average, maintain long-term convictions in crypto, and we believe they are likely to become more active as market conditions improve.”
