Despite Bitcoin Drop, Coinbase Net Profit Doubles As Trading Volume Swells

The United States’ largest cryptocurrency exchange, Coinbase (COIN), just reported second-quarter earnings, highlighted by $2.0 billion in net revenue for the quarter, up 27% from Q1 and the addition of 12 million verified users to reach a customer base of 68 million. Its net income rose from $771 million in Q1 to $1.6 billion in Q2, a gain of 108%.  

Tuesday’s release is the company’s second earnings report since its public debut in April. Just as last quarter, transaction processing provided the overwhelming majority of its revenue. Of the $2.0 billion in revenue, $1.9 billion came from this segment with the rest derived from subscription and services revenue. In Q1, net revenue came in at $1.6 billion, consisting of $1.5 billion in transaction revenue and $56.4 million in subscription and services revenue.

These record numbers stand in contrast to the crypto market’s performance over the past three months, which have seen leading assets such as bitcoin and ether depreciate, largely on the back on further regulatory crackdowns in China, Tesla TSLA halting its acceptance of bitcoin as a payment method, and concerns that record levels of inflation would force central banks to rein in their loose monetary policies.

Following a second strong quarter, analysts will now look to see if COIN can break away from its close correlation with bitcoin. When the exchange went public in April 2021 in the largest direct listing ever, bitcoin was just about to reach  its all-time-high of $64,654. In turn, COIN reached as high as $429. Since then, the crypto market reversed course, punctuated by bitcoin falling below $30,000 and COIN dropping to a low of $208. However, the market has since recovered. Bitcoin is now trading at $45,582 and COIN has reached $269, down nearly 40% from its all-time-high four months ago. 

Looking forward, many analysts will evaluate whether Coinbase’s broadening set of trading pairs will make it the diversified crypto investment opportunity many expected. 

One positive sign is the fact that trading volume in ether passed that in bitcoin for the first time. In Q1 2021, Coinbase supported $335 billion worth of trading volume with bitcoin and ethereum comprising 39% and 21% of this activity, respectively. In quarter two, total trading volume jumped to $462 billion but most notably ether’s volume (26%) was higher than bitcoin’s (24%).

Still, despite this impressive growth and the crypto market strengthening, challenges remain. Earlier this month, Securities and Exchange Commission Chairman Gary Gensler argued that the regulator needed more power to regulate crypto products, signaling he is ready to take a more active role in crafting crypto policy. Additionally, the recent inclusion of onerous tax reporting requirements on everyone from bitcoin miners to crypto software developers threatens to create an exodus of crypto companies from the U.S. in the coming years, which could dampen investor enthusiasm.

Source: Forbes