Coinbase has seen a dramatic decrease in activity since last year and analysts expect trading volume to show a renewed drop when the company reports Q3 results this afternoon.
“Transactional revenue, which constitutes at 76% or more of sales likely dropped to $517 million for Q3 from $655 million the previous quarter, and is 71% lower than it was October 2021,” says Javier Paz, director of data and analytics for Forbes Digital Assets.
“Retail traders generate only 32% of the volume and 95% of trading revenue, while institutional traders make up 68% of the trading and only 5% of the revenue,” says Paz. The retail customers are vastly more profitable because of higher fees. “Coinbase retail investors are now paying the equivalent of 131 basis points while institutional traders pay 2.1 basis points.”
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However, Coinbase has more active users—102 million—than any other crypto exchange, and this large retail base shields the company from the worst effects of the ravaged sector. “What retail traders get,” adds Paz, “is the confidence of dealing with a big company that is the closest the crypto space gets to too big to fail.”
Still, competition has gotten stiffer as rival exchanges like Binance and FTX also appear to be weathering the cryptocurrency storm. On the other hand, some smaller rivals may run out of money before trading volume picks up, potentially a “big advantage” for Coinbase, Paz says.
Cryptocurrency prices have been trading steadily over the past few weeks but the market’s value of $1 trillion is down from its $2 trillion valuation at the start of the year. Bitcoin
Coinbase Q3 sales are expected to fall to $641 million from $1.3 billion a year earlier, with a net loss of $527 million versus a profit of $406.1 million last year, according to the consensus of analysts’ predictions compiled by Factset. On an adjusted basis used by Wall Street, the firm’s loss per share is projected to be 86 cents.