Coinbase blames falling crypto volumes for declining revenue

Coinbase suffered sharp declines in revenue and trading volume in the third quarter as the washout of Bitcoin and other digital assets turned the fortunes of the once fast-growing cryptocurrency exchange.

The US-listed company confirmed "another tough quarter" as it reported net sales of $576 million, down from more than $1.2 billion a year ago and from $803 million in the previous quarter. Coinbase lost $545 million in the quarter, compared to net income of $406 million a year earlier.

The crypto market collapse earlier this year continues to take its toll on trading venues like Coinbase. Tokens like Bitcoin and Ether have lost about 70 percent of their value since their all-time highs last year. Trading volume and monthly active users at Coinbase fell 27 percent and 6 percent, respectively, from the second quarter to the third quarter.

The price drop was followed by rangebound trading for popular crypto tokens. Recent figures from data provider CryptoCompare show that the average annualized volatility for Bitcoin has reached its lowest level since October 2020. The lack of price action has put renewed pressure on Coinbase, which called crypto asset volatility a “key driver of our retail volume.” in a letter to shareholders.

"This was a very difficult quarter for Coinbase as macro and crypto headwinds take center stage. The user base is declining and this is not a picture-perfect quarter for the Street," said Dan Ives, senior equity analyst at Wedbush Securities.

Coinbase announced in June that it would cut nearly a fifth of its workforce, equivalent to more than 1,000 employees. Then-CEO Brian Armstrong admitted the exchange had grown “too fast” and ended 2021 with over 3,700 employees. As part of the sharp pullback, job offers on the stock exchange were also withdrawn.

Earlier this week, Coinbase Chief Product Officer Surojit Chatterjee said he would step down, saying, “Now it’s time to get off the ride and catch your breath.” Chatterjee will continue to serve as an advisor to Armstrong.

Coinbase also cited “macroeconomic factors” and “geopolitical factors” – including the war in Ukraine – that are weighing heavily on financial and crypto markets.

“Crypto tried to distance itself from mainstream economics by claiming that Bitcoin was a hedge against inflation and that crypto would continue to exist almost in its own bubble,” said Charley Cooper, managing director of blockchain group R3. “I think it’s important to put into context that the crypto world is increasingly influenced by the broader world of economics.”

Assets on the Coinbase platform increased by $5 billion from the second quarter to $101 billion. Despite a difficult financial year, it reached an agreement in August with asset management group BlackRock to provide its clients with more seamless access to digital asset markets. The move - which was seen as a win for Coinbase - was seen as a sign that institutional appetite for digital assets remained despite the price decline.