Coinbase Upbeat Despite $1.1B Loss, as Shares Sink 10%

How bad was crypto exchange Coinbase’s second quarter? Well, one of the first things CEO Brian Armstrong said was, “there’s a phrase that we say often internally at Coinbase, it’s never as good as it seems. And it’s never as bad as it seems.”

So, not good.

The Nasdaq-listed cryptocurrency exchange saw trading volume and transaction revenue fall as investors fled as the crypto market’s collapse. Trading volume was down by 30%, from $74 billion in the first quarter to $46 billion in Q2, and transaction revenue was 35%, from $965.8 million to $616.2 million.

Coinbase’s earning come mostly from trading fees, and as investors fled as the crypto markets as prices collapsed.

As a result, net revenue worsened, dropping 64% in the second quarter to $803 million, on a loss of almost $1.1 billion. Those losses were twice what analysts expected, CNBC said.

Monthly transacting users declined to 8 million, and Coinbase expects that trend to continue in Q3.

In some ways, what Coinbase said this quarter was very similar to what it said last quarter: We’ve been through up and down cycles before. We keep building. We focus on innovation and growing new products rather than just keeping up with demand.

Still, this is Coinbase’s first downcycle as a public company, Armstrong said, and it is still figuring out how to explain to shareholders how crypto up and down cycles work.

But, he noted that the company “intentionally raised capital in 2021 to ensure that we had a really strong balance sheets going into this downturn,” and so is in solid shape. But, it’s also cutting expenses, notably with the 18% job cuts announced recently and putting off some investments

Armstrong also pointed out that Coinbase was not harmed by any of the big disasters that struck the crypto industry, including the $48 billion collapse of the Terra/LUNA stablecoin — Coinbase partners with Circle to issue USDC, which grew after the TerraUSD failure — and the subsequent collapse of a hedge fund and several crypto lenders that left many investors with frozen and likely diminished funds.

“We’ve been through many crypto cycles before. It seems scary, but it’s never as bad as it seems. It’s never as good as it seems,” he said. “Coinbase has succeeded over the last 10 years by continuing to focus on great product execution during down markets and managing expenses closely.”

Validation

One of Coinbase biggest wins came last week — so technically in Q3 — was a partnership with Blackrock Inc, the world’s largest investment management firm, to offer institutional investors manage and trade Bitcoin. The news was seen not only as a source of income but as an important show of confidence in its place as a preeminent U.S. exchange — one sorely needed as it fell behind competitor FTX in terms of trade volume this year.

“After this validation, it is possible that Coinbase will be able to partner with more traditional financial industries,” Oppenheimer & Co. analyst Owen Lau told Bloomberg on Aug. 4. “It shows that even with the size of BlackRock, they are going to partner with a crypto-native company, rather than building their own capabilities.”

Coinbase’s shares jumped 10% on the news, although it gave up that increase, dropping 10.5% after the disappointing Q2 results.

Armstrong said it required several years of due diligence to get the Blackrock deal done, and noted that Coinbase had also been selected by Meta as its partner “as they develop their crypto offerings.”

Calling it a “really huge deal,” Armstrong said it shows “Coinbase is situated uniquely to be the preferred partner to the largest companies in the world who wants to integrate crypto into their offerings … And we’re really the only reasonable choice for many of these companies as the most trusted platform and the first public company in crypto.”

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