Coinbase executives are navigating uncharted waters in a changing crypto industry as trading volumes shrink and regulatory pressures intensify.
According to a research note published on Wednesday, Mizuho analysts, led by Dan Dolev, recently reduced their third-quarter revenue estimates for Coinbase (COIN) by 7% to $609 million. This downward adjustment comes as the crypto exchange giant faces lower-than-expected trading volumes, posing challenges for its upcoming quarterly report.
The reduced revenue estimate of $609 million contrasts with the broader analyst consensus of $682 million, as reported by FactSet. The primary driver of this change is the unexpectedly low trading volume on the Coinbase platform, which is the largest exchange serving U.S. customers. Mizuho analysts suggest that Coinbase’s trading volume for July through September was approximately $72 billion, significantly lower than their previous estimate of $88 billion.
Analysts at Mizuho expressed their concerns, stating, “We expect dwindling volumes…combined with an expected drought in retail trading to meaningfully weigh on 3Q revenue.”
Coinbase , which has witnessed a significant surge in its stock price due to the resurgence of cryptocurrency prices in 2023, now faces challenges stemming from decreased retail investor interest. Despite Bitcoin and other token prices showing a 66% increase this year, trading volumes across cryptocurrency platforms have decreased.
Actually, a regulatory crackdown on the crypto industry, presented by the Securities and Exchange Commission’s lawsuit against Coinbase in June, supposedly operating as an unregistered securities exchange, has added to the challenges. Coinbase executives noted their efforts to diversify the company’s revenue streams away from trading activities, aiming for a more stable income from other parts of the crypto ecosystem.
One such initiative is Coinbase’s focus on its staking business, allowing investors to earn yields by participating in blockchain networks. Additionally, the exchange has increased its income by partnering with the USDC stablecoin, which holds reserves in U.S. Treasuries and generates substantial interest income.
It seems that Coinbase’s long-term strategy seems to be directed towards reducing its dependence on trading activities. Nevertheless, in the short term, the company’s fate remains closely tied to the level of interest from retail traders, which, for now, seems to be on the decline. Despite the challenges on the horizon, Coinbase executives remain committed to guiding the company through these turbulent waters, adapting to changing market dynamics and regulatory landscapes.