Coinbase revenue is coming. Another bad quarter isn’t even the biggest concern.

Analysts surveyed by FactSet expect Coinbase to report a loss of $1.98 per share on revenue of $655 million in the first quarter, a slight improvement from the end of 2022, when the broker reported a quarterly loss of $2.46 per share on 629 million dollars in revenue.

Despite efforts to diversify into subscription and services businesses, the price of Bitcoin remains key for Coinbase, and its finances should have been boosted by the surge in crypto assets last quarter. With its core customer base remaining US retail investors, Coinbase is sensitive to bull and bear market dynamics, as this group of traders tends to pile in when prices rise and flee when prices fall.

But this time, a rally in Bitcoin prices may not even be enough.

“Our detailed earnings construction points to at least 20% downside to consensus in both the second quarter and full 2023, as subdued trading volume and a sharp decline in USDC market capitalization are likely to weigh on transaction and interest income,” Dan Dolev, an analyst at Mizuho Securities, wrote in a note note. Mizuho rates Coinbase as Underperform and on Wednesday cut its price target on the stock to $27 from $30.

USDC is USD Coin, a stablecoin pegged to the US dollar issued by Circle Internet Financial. Circle and Coinbase have a revenue-sharing agreement — a sign of Coinbase’s diversification efforts — in which Circle pays the group to hold cash in USDC.

“Despite Coinbase’s recent attempts to boost sentiment (e.g. recent launch of an international exchange for non-US users), fundamentals remain weak,” Dolev added.

However, the income may be much less important than the spent. That’s because the digital asset space as a whole has been under intense US regulatory scrutiny over the past year, and Coinbase has not been exempt.

Coinbase disclosed in March that the Securities and Exchange Commission had sent it a so-called Wells notice, a warning that the agency could sue the exchange. Coinbase said it was confident in the legality of its assets and services, but has since flagged that it will consider pushing offshore if US regulatory clarity does not improve. This week, the company launched Coinbase International Exchange, an attempt to push into the lucrative crypto derivatives market with a platform regulated from Bermuda.

“As it stands, both long and short debates begin and end with Coinbase’s regulatory difficulty,” Peter Christiansen, an analyst at Citi, wrote in a Monday note while downgrading Coinbase to neutral/high risk with a price target cut to $65 from $80. “Until the regulatory ‘rules of the road’ are better established in the US, the stock will remain weighed down by this high level of uncertainty.”

Write to Jack Denton at [email protected]