Coinbase posts steep second-quarter loss amid crypto meltdown

Largest US crypto exchange hurt by sharp loss in trading fees.

Coinbase smashed by crypto meltdown. Picture: Michael Nagle/Bloomberg

Coinbase Global reported a surprisingly large second consecutive quarter of losses, driven by the crypto market’s spring meltdown.

Coinbase lost $US1.1bn ($A1.58bn), or $US4.98 a share, in the second quarter, the company said Tuesday, compared with a profit of $US1.6bn, or $US6.42 a share, a year ago. Revenue fell to $US808m from $US2.2bn a year ago.

Analysts expected the company to report a loss of $US2.47 a share, according to FactSet. Shares fell about 5 per cent to about $US83 in after-hours trading. That is a far cry from the $US381 where the stock opened trading when it went public in April 2021.

Coinbase is the largest US-based crypto exchange and one of the top three in the world by trading volume. It is also one of the few publicly traded companies in the sector, so its earnings provide insights into an otherwise opaque market.

The entire sector has been badly stung by a sell-off that began in November. Firms such as Celsius Network and Voyager Digital Holdings have filed for bankruptcy protection. More than 20 smaller exchanges have shut down. Earlier this week, two other public crypto companies, Galaxy Digital Holdings and Marathon Digital Holdings, reported wider losses than a year ago.

The second quarter was arguably the worst three-month period in the short history of cryptocurrencies. The trouble really started in early May, with the collapse of a so-called stablecoin called TerraUSD and its sister cryptocurrency, Luna.

The turmoil spread quickly, with once-high-flying crypto companies slashing jobs, halting mergers and barring customers from withdrawing their money. The total value of the crypto market tumbled 56 per cent in the quarter.

Coinbase grew rapidly since its founding in 2012, marketing itself as a place where regular people could buy and sell cryptocurrencies. It was especially profitable during the 2020-21 rally, but its rapid growth left it vulnerable when the sell-off hit.

The company’s total user count did rise above 100 million for the first time, totalling 103 million in the quarter, up from 68 million a year ago.

But the number of active users fell. Coinbase’s monthly active users, which represents customers who make at least one trade in a month, fell to 9 million from a peak of 11.2 million in the fourth quarter of 2021.

That is a problem for the company, because it is still largely dependent on transaction fees for its revenue. Second-quarter transaction revenue fell 66 per cent from a year ago. Trading comprised 82 per cent of net revenue.

The company’s expansion into other businesses, what it calls subscription and services revenue, comprised the other 18 per cent.

Coinbase is still largely dependent on retail traders. Retail trading comprised $US616m of its $US655m in transaction revenue.

Coinbase has tried to manage its expenses through the downturn. In May, the company decided to slow its hiring pace, and in June abruptly announced that it would cut its workforce by 18 per cent, the first round of lay-offs in its decade of operations.

In a regulatory filing, Coinbase said the Securities and Exchange Commission is investigating its listing procedures and the “classification of certain listed assets.” The SEC said in a July court complaint that at least nine crypto assets on Coinbase’s platform are securities whose issuers failed to comply with federal investor protection laws. That lawsuit charged three men, including one former Coinbase employee, with illegally profiting from inside knowledge that those assets would soon be listed for trading on Coinbase.

Dave Michaels contributed to this article.

The Wall Street Journal