Crypto exchange Coinbase’s second-quarter earnings revealed some key new findings about the sector that show institutional adoption and asset diversification are on the horizon.
Coinbase posted a surprisingly stellar quarter on 11 August, trumping expectations to report $2.2bn in revenue and net income of $1.6bn for the three months to the end of June.
The results marked Coinbase’s first quarterly earnings after becoming a public company in April, a journey which has since been rocky for its share price. After hitting an all-time high on its debut day of $381 per share, Coinbase’s stock has yet to recover and sat at $269.67 before the results were published.
The platform benefitted from a one-time line item worth $737.5m during the period, which Coinbase attributed to a “tax benefit” from its direct listing.
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Overall trading volume on the platform hit $462bn, up from $335bn in the first quarter, as cryptocurrencies went through extreme volatility that saw bitcoin lose more than 30% in a single day in May.
Here’s what we learned from Coinbase’s first public shareholder letter.
1. Ether is getting bigger than bitcoin
Ether trading volumes have surpassed bitcoin on Coinbase for the first time, which the exchange said was driven by growth in decentralised finance and non-fungible tokens using the Ethereum protocol to power transactions.
Of Coinbase’s total trading volume in the second quarter, 24% belonged to bitcoin, down from 39% three months earlier. Approximately 26% of trading volumes were attributed to ether, while 50% lay in other cryptoassets.
2. Hedge funds are waking up
Growth in institutional trading volumes outpaced that of retail investors in the second quarter, jumping 47% quarter-on-quarter to $317bn. Retail growth came in at 21%, by comparison, rising to $145bn.
“The arrival of big institutional investors in the crypto market will steady the ship in terms of market enthusiasm,” said George Monaghan, thematic analyst at GlobalData. “Not only will the big names trade larger quantities with longer-term strategies, their very participation will legitimise the currencies in which they invest.”
The exchange revealed that 10% of the top 100 hedge funds by assets under management are now Coinbase clients, with notable recent additions including PNC Bank, Third Point and WisdomTree. Elon Musk, and two of his firms SpaceX and Tesla, are also customers of the platform, it said.
“This is really a new theme that we see where more and more hedge funds are making allocation to the crypto economy and engaging in multiple assets on our platform,” said Coinbase chief financial officer Alesia Haas on an earnings call, in comments reported by MarketWatch.
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3. Overall demand could be fading
Monthly transacting users — a metric for determining overall trader activity on Coinbase — may not be as strong in the coming quarter as it was in the June period. Looking ahead to the coming quarter, the platform forecast lower levels, which dampened investor excitement.
In July after the second quarter closed, retail MTUs and Coinbase’s total trading volume were at 6.3 million and $57bn respectively, Coinbase said. It attributed the slowdown to crypto prices and volatility, which “declined significantly relative to Q2 levels”.
So far in August, those levels “have slightly improved compared to July levels but remain lower than earlier in the year”, it added, meaning that “as a result, we believe retail MTUs and total Trading Volume will be lower in Q3 as compared to Q2”.
4. It’s still ‘early days’ for the ‘crypto economy’
Coinbase reported a huge spike in subscription and services revenue during the quarter, growing nearly 100% from $56.4m in March to $102.6m in the most recent period. This is one of the platform’s key strategies, where it hopes other products such as custodial services will help it outcompete other exchanges which offer cheaper fees.
Chief executive Brian Armstrong said on the earnings call that Coinbase is seeing growing adoption of products beyond trading, including yield-earning products and the ability to spend crypto with a Visa card.
“That tells us that truly a crypto economy is forming,” he said. “It’s not just a trading platform.”
This will be a strong focus for Coinbase going forward, as it attempts to broaden crypto from being used as an investment vehicle.
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“We intend to prioritise reinvestment into the business to continue to grow the crypto economy through both crypto bull and bear markets alike, and through both organic and inorganic means,” Coinbase said in its shareholder letter.
“Q2 illustrated the volatility we have anticipated in these still-early days in the crypto economy,” Coinbase said in its letter to investors. “As volatility and crypto asset prices are highly correlated with trading revenue, the crypto market environment heavily influenced our Q2 financial results.”
To contact the author of this story with feedback or news, email Emily Nicolle