Coinbase Posts $1.1B Loss for Q2 as Trading Volume Declines

Coinbase reported a larger-than-expected quarterly loss of $1.1 billion in the second quarter of the year. The disappointing results came as the crypto exchange saw a sharp drop in its revenue driven by the decline in trading volumes and sinking retail and institutional participation.

Coinbase’s Revenue Declined Over 60% YoY Basis

Coinbase reported a loss of $1.1 billion in the second quarter amid a sharp decline in revenues. The exchange’s revenues fell from $2.033 billion in the second quarter of 2021 to $803 million, which represents a drop of around 64%. The exchange also missed analysts’ estimates for revenue of $832.2 million. 

The San Francisco-based crypto company cited dwindling trading volumes as well as fading retail participation as the main reasons for the bad performance. Trading volumes at the cryptocurrency exchange more than halved to $217 billion in the second quarter, down 30% compared to Q1. Likewise, retail participation fell 68% and institutional trading dropped 46%. The company said post the reporting: 

“Q2 was a tough quarter, with trading volume and transaction revenue each down by 30 per cent and 35 per cent sequentially, respectively. Both metrics were influenced by a shift in customer and market activity, driven by macroeconomic and crypto credit factors alike.” 

The company reported a $377 million noncash cryptocurrency-related impairment charge. An impairment charge describes a drastic reduction or loss in the recoverable value of an asset, in this case, Coinbase’s crypto holdings. The value of the exchange’s crypto assets was $428 million by the end of June, down from about $1 billion at the end of March. Over 40% of the cryptocurrency assets were in bitcoin.

As part of its precautionary actions to reduce expenses, Coinbase has laid off about 20% of its workforce. The exchange has also extended its hiring freeze after the recent crypto meltdown despite initially announcing plans to hire 2,000 new talent by the end of the year. It said:

“On the expense side, we’ve taken several steps to streamline our cost structure, including an 18 per cent employee reduction in June. The current downturn came fast and furious, and we are seeing customer behaviour mirror that of past down markets.”

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Other Coinbase Headwinds: Insider Trading and SEC Probe

Coinbase’s bad quarterly performance comes as the exchange is currently struggling with some regulatory headwinds. In mid-April, the Federal authorities filed criminal and civil charges against a former Coinbase employee and two other men in the first-ever cryptocurrency insider trading case, a move that pushed the exchange to change its listing process. 

In late July, the SEC launched an investigation over the listing of certain digital assets on Coinbase that might be considered securities. The agency said that nine of the digital assets linked to the insider trading case and listed on Coinbase are securities. 

However, Coinbase has refuted this claim. Paul Grewal, Chief Legal Officer of Coinbase, said that none of the listed cryptocurrencies on their platform are securities. He claimed that the process in which they determine whether a digital asset is a security or not has been reviewed by the SEC itself.

It is worth noting that despite all the misfortunes, Coinbase has agreed on a landmark deal with BlackRock, teaming up with the world’s largest asset manager BlackRock to offer crypto services to institutional investors. The deal allows joint customers of Coinbase Prime and Aladdin—BlackRock’s investment management platform—to gain access to crypto trading, prime brokerage, and reporting features.

Do you think Coinbase would be able to perform better in the third quarter of the year? Let us know in the comments below.