Crypto traders are scarce, and that is likely to spell trouble for
Coinbase
‘s third-quarter report, Mizuho said on Wednesday.
Analysts led by Dan Dolev cut their third-quarter revenue estimates for Coinbase (ticker: COIN) by 7% to $609 million, according to a research note on Wednesday. That compares with sales of $682 million expected by analysts broadly, according to FactSet.
Driving the change was lower-than-expected trading volume on the crypto platform, which is the largest exchange serving U.S. customers. The Mizuho analysts wrote they believed Coinbase had about $72 billion in volume from July through September, rather than the $88 billion they had estimated previously.
“We expect dwindling volumes…combined with an expected drought in retail trading to meaningfully weigh on 3Q revenue,” the analysts wrote.
A Coinbase spokesman declined to comment. In the past, its executives have said that they are trying to diversify their business to other parts of the crypto ecosystem so that revenue depends less on trading activity.
Evaporating volumes aren’t unique to Coinbase but have plagued crypto-trading platforms throughout 2023, even as the prices of Bitcoin and other tokens stage a recovery. This year, Bitcoin has risen 66% to about $27,500.
Coinbase stock has benefited from the price resurgence, more than doubling this year to about $72.50.
The Mizuho analysts maintained an Underperform rating on shares with a $27 price target.
One of the platform’s issues is a continued regulatory crackdown on crypto. The Securities and Exchange Commission in June sued Coinbase, accusing it of operating as an unregistered securities exchange, a charge the company denies.
But apart from that, Coinbase has been a casualty of diminished interest from retail investors. Token prices, while up for the year, have stagnated in a range for the last several months. Crypto-market makers have pulled back in part because of regulatory issues, leading to worse spreads and prices for retail traders.
“When volatility is low, like we see today, people just sit and hold,” Coinbase Chief Financial Officer Alesia Haas said at a conference last month.
In the long term, Haas and other Coinbase executives say they are hoping to make more money from parts of the crypto industry that don’t depend on trading. The firm, for example, has tried to grow its staking business, which lets investors earn a yield from posting their tokens to various blockchains. They also have made more money this year from their partnership on the USDC stablecoin, which holds reserves in U.S. Treasuries and other assets that throw off millions in interest income.
But in the short term, Coinbase’s fate is closely tied to retail trader interest. For now, it just isn’t there.
Write to Joe Light at [email protected]
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