Coinbase cuts losses but sees 58% fall in trading volume in Q2 23

Coinbase cuts losses but sees 58% fall in trading volume in Q2 23

Crypto exchange Coinbase has beaten analyst expectations for Q2 23, having reported another positive adjusted EBITDA of $194m after reducing its staff numbers by 30%. However, trading volumes fell 58% YoY to $92bn, contributing to a 17% decline in net revenues to $663m. This decline, plus increasing scrutiny from the US Securities and Exchange Commission (SEC), has weighed on the company’s results this quarter. 

Coinbase continues YoY EBITDA gain in Q2 2023
Coinbase quarterly revenues and EBITDA margin, 2019-2023

Coinbase’s subscription and services revenue share passes 50%

Coinbase has continued to grow its share of subscription and services revenue – which comprises its crypto staking offering – as it says this segment is less volatile than its trading business. 

Subscription and services accounted for $335m, more than 50% of overall revenues for the first time. This was above expectations (Coinbase’s Q2 23 outlook for subscription and services was $300m) and up by 128% YoY, and has been driven by higher interest rates, blockchain rewards revenue and higher Ethereum activity. Meanwhile, total transaction revenues were $327m, down 13% QoQ and 50% YoY, as a result of declining trading volumes.

Coinbase subscription and services revenue grows
Coinbase quarterly revenue by segment, 2020-2023

Coinbase has also continued its cost cutting program to curb net losses this quarter, which totalled $97m – higher than last quarter, but a lot better than the $1.1bn in Q2 22. Recurring operating expenses (technology & development; sales & marketing; and general & administrative) collectively declined 50% YoY and 1% QoQ, to $664m, and further cuts to headcount are currently on hold. 

Changes in trading volume and the crypto market

Despite work to differentiate its revenue streams, Coinbase’s results are still linked to the wider crypto market’s capitalisation, which increased by 12% (on average) to $1.2tn in Q2 2023. Crypto asset volatility, which helps drive trading volumes, declined in Q2 to lower absolute levels compared to the prior five years. As a result, trading volumes were down 37% QoQ and 58% YoY (though global crypto spot market volumes declined by 48% QoQ).

Coinbase trading volumes fall in Q2 23
Coinbase trading volumes split by crypto asset, 2020-2023

Having said this, the recovering price of Bitcoin this year seems to have run alongside a shift in the amount of assets on Coinbase’s platform, which declined 1% QoQ but was up 33% YoY to $128bn. Bitcoin now accounts for 40% of volume share (up from 32% in Q1), Ethereum was 23% and the remaining 38% was other crypto assets. However, the company did also mention a higher amount of Ethereum activity on its network in Q2, partly driven by the recent Shapella upgrade to the Ethereum blockchain.

The SEC, Coinbase and regulatory challenges in 2023

Investor response to the latest earnings was muted, but Coinbase’s share price has risen by around 170% this year-to-date (though it is still down by roughly 70% since the company’s peak in November 2021). This number could continue to climb if crypto assets remain at a low volatility level and faith in digital currencies is restored.

However, Coinbase’s tangles with legal issues could also get in the way. Earlier this year, the SEC filed a lawsuit against Coinbase, charging the company with being an unregistered securities exchange broker, thereby putting investors at risk. This week, the SEC has also asked the company to stop trading in all cryptocurrencies except Bitcoin.

Coinbase Co-Founder and CEO Brian Armstrong said in the earnings call that the company was confident in the work it has done to abide by federal and state laws, and wants to use the proceedings to spearhead a campaign for clearer crypto regulation. He added that this will help payments to emerge as a greater use case for crypto, alongside making blockchains more scalable and the ongoing development of Layer 2 solutions. 

One aspect within payments the company has previously explored is remittances. Although Coinbase hasn’t provided any further update on the cryptocurrency remittance pilot program it launched in Mexico last year, the company did release a blog in early Q2 in which the company claimed international crypto remittance payments would be significantly faster and over 96% cheaper than traditional fiat remittances when it comes to fees. 

Coinbase has so far reported seeing less volatility in crypto and signs of recovery in crypto asset pricing, and stated that its goal is to bring over a billion people into the crypto world. However, at the moment, increased scrutiny following the collapse of FTX is still weighing on the wider market and therefore a large segment of its revenues. Though the company has returned to profitability, there are still plenty of challenges ahead this year. 

How does Coinbase compare to other crypto players?

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