Coinbase Misses Q3 Estimates, But Fed Provides Silver Lining

Coinbase
PIECE OF MONEY
Global analysts missed third-quarter sales and earnings estimates, but there was a silver lining in rising interest income, and shares of the crypto exchange rose in after-hours trading Office.

Revenue was $590.3 million, below the Wall Street consensus of $641 million compiled by Factset, and the company posted a net loss of $544.6 million worse than the $527 million dollars expected.

The interest rate hike, designed by the Federal Reserve to reverse the extraordinarily accommodative monetary policy in place after the onset of the coronavirus pandemic, boosted Coinbase’s results significantly. Interest jumped to $101.8 million from just $32.5 million in the second quarter and $8.4 million in the third quarter of last year.

Coinbase shares rose nearly 4% to $57.89 at 6:19 a.m. PT, after finishing down 8% in Thursday’s regular trading session. The figures were released after the market closed.

According to Javier Paz, Director of Data and Analytics at Forbes Digital Assets.

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“Retail merchants reduced their transactions by 43% compared to last June, while institutions also reduced their activity by 22%,” he adds.

After a hiring freeze and the revocation of offer letters in June, Coinbase saw a 5% reduction in its workforce in the third quarter, to 4,706 employees.

Coinbase has a strong complement of individual traders, whose business is much more lucrative than that of institutions and ensures the stability of the exchange in the long term.

The retail sector accounts for about a third of the volume but nearly all of the business revenue, Paz says. Individual clients are much more profitable due to higher fees. “Coinbase retail investors now pay the equivalent of 131 basis points while institutional traders pay 2.1 basis points.”

Still, competition has stiffened as rival exchanges like Binance and FTX also appear to be weathering the cryptocurrency storm. On the other hand, some smaller rivals could run out of money before trading volume picks up, which could be a “big advantage” for Coinbase, Paz says.

Cryptocurrency prices have been trading steadily over the past few weeks, but the $1 trillion market is down from its $2 trillion valuation at the start of the year. Bitcoin
BTC
the biggest crypto, is trading around $20,000, down from $50,000 at the start of the year, while runner-up Ether is in the $1,500 range, down from $3,700 in January.