Coinbase Stems the Bleeding But Worse to Come

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  • Coinbase has stemmed its flow of losses, reducing them by 50% in the last quarter
  • The exchange lost $545 million last quarter compared to $1.1 billion in the second quarter
  • Transactional volume is a huge concern, with traders leaving the platform for others

Coinbase revealed to shareholders yesterday that it has managed to cut its losses in half over the past quarter, but that it expects its trading volume to continue to suffer into 2023. The exchange giant lost $545 million in Q3, up from $1.1 billion in the second quarter, thanks to reining in costs and cutting its workforce, but its transaction volume was down 44% from earlier in the year. The company doesn’t see the landscape changing in the next 6-9 months, predicting worse was to come for its transaction volume.

Coinbase’s Cutbacks Prove Effective

Coinbase announced in May that it was scaling back its growth projections, including cutting back on the number of new hires, as it prepared for the bear market that began in earnest the month after. This seems to have helped it weather the storm better than many, cutting its losses overall by 50%, but more worrying will be the direction its transaction volume is headed.

Coinbase’s transaction revenue was $366 million in the last quarter, down 44% from Q2 when the market was in freefall. In the shareholder letter, the company sounded a downbeat note about its prospects, saying that “trading volume has been shifting away from the U.S., where our business is concentrated”, part of which was due to the “perception of uncertainty” that many are starting to have regarding the U.S. regulatory framework for cryptocurrencies, in particular when it comes to securities.

This trend has in fact been in play ever since the emergence of exchanges such as Binance and FTX taking its market share away, although Coinbase is still the second biggest exchange by 24-hour volume. The growth of DeFi trading platforms, many of which now have equal or even superior facilities, have also helped to take buyers away from Coinbase, which suffers from having a much more corporate vibe than other exchanges.

COIN Share Price Continues to Dive

The Coinbase share price didn’t fare well, continuing their decline to $55.8 having been at $78 just 10 days ago. The outlook for 2023 wasn’t particularly positive either, with the letter concluding on a cautionary note:

For 2023, we’re preparing with a conservative bias and assuming that the current macroeconomic headwinds will persist and possibly intensify.

In other words, batten down the hatches – the storm is coming.