(Kitco News) – Coinbase, the largest and most active cryptocurrency exchange in the United States, reported a stunning $1.1 billion net loss in the second quarter of 2022 amid plunging crypto prices and subdued trading volumes.
This figure represents the largest loss for the crypto company since being listed on the Nasdaq Stock Exchange in April 2021 and its second consecutive negative quarter.
As a result of the recent struggles, Coinbase’s long-term issuer credit rating was downgraded from BB+ to BB status on Thursday by rating agency S&P Global, which highlighted the company’s weaker performance in Q2 as a deciding factor.
S&P Global also cited intensified competitive risk in the cryptocurrency exchange sector as a factor that influenced its decision after Coinbase saw a decrease in its market share while its competition gained ground. The rating agency noted that there remains a potential for “further market share deterioration” due to regulatory risks and the competitive landscape of the sector.
While crypto prices have been rising over the past month, the vast majority of tokens remain well off their all-time highs, and crypto winters have been known to stretch on for multiple years in some instances. Coinbase’s revenue is largely driven by fees earned through trading activities, which are notably lower during bear market periods.
Coinbase experienced a 30% quarter-on-quarter decline in trading volume despite only a 3% decrease in total cryptocurrency spot trading volume across all venues, further highlighting the exchanges’ dwindling market share.
“The negative outlook reflects uncertainties about the duration of the crypto market downturn and the company’s ability to operate efficiently by managing operating expenses prudently,” S&P Global stated in its post.
For its part, Coinbase has acknowledged that Q2 was a “tough quarter” for the firm in a letter to shareholders released on Tuesday, citing a “fast and furious” downturn of the crypto markets as the reason behind a sizeable $1.1 billion net loss.
The reported $802.6 million in revenue was a 45.1% drop from the previous quarter and a 153.1% decrease YoY, while the main driver of its staggering net loss was $446 million in non-cash impairment charges caused by lower crypto asset prices in Q2.
In response to the ongoing struggles, the cryptocurrency exchange cut 18% of its employees in June and has taken a “pause, maintain and prioritize” approach when it comes to product development.
“Overall, it will take some time to fully realize the financial impact of our actions, but we have lowered our full-year expense range for Technology & Development and General & Administrative expenses,” Coinbase said in its shareholder letter.
Despite the firm’s struggles, the price of Coinbase (COIN) stock has climbed from a low of $50.35 on July 14 to its current price of $88.30, a gain of 75% in a little less than a month.
COIN price. 1-day chart. Source: TradingView
A major factor that helped lead to a spike in demand for COIN was the recent announcement that BlackRock has partnered with the crypto exchange to give members of its Aladdin institutional investment platform access to cryptocurrencies, beginning with Bitcoin (BTC).
According to Julius de Kempenaer, crypto expert and senior technical analyst at Stockcharts.com, “This short-term optimism will most likely dissipate as investors digest these latest results, highlighting all the challenges facing COIN in the coming months. Until we see a broader recovery in risk assets, with major cryptos like Bitcoin recovering more of their 2022 losses, the picture remains challenged for COIN and the broader cryptocurrency space.”
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