Crypto Giant Coinbase Misses Estimates as Crypto Winter Rages On

Key Insights:

• On Tuesday, Coinbase (COIN) delivered disappointing earnings results for the second quarter and a gloomy outlook for Q3.
• The earnings miss comes as the SEC investigates the exchange for allegedly listing unregistered securities.
• Adding to the platform woes is another investor lawsuit.

It has been a challenging 2022 for the crypto market and broader digital asset space. While the largest crypto exchanges look to capitalize on the fallout from the crypto winter, some have shut down as others struggle.

Leading crypto exchange Coinbase (COIN) has been one of several exchanges that have needed to respond to the current market environment.

In June, the platform joined a growing list of crypto exchanges announcing staff layoffs to cut costs. However, the move was too late for Q2, with the outlook for the third quarter also looking gloomy.

Coinbase Earnings Miss and Q3 Outlook Point to Crypto Troubles Ahead

On Tuesday, Coinbase released second-quarter earnings results that disappointed. While several blue-chip tech stocks delivered positive outlooks, the US-listed crypto exchange also painted a gloomy outlook for the third quarter.

Key numbers for Q2 include,

• Monthly Transaction Users (MTU) down from 9.2 million (Q12022) to 9.0 million (Q22022). In Q4 2021, MTUs stood at 11.2 million.
• Trading volume slumped from $309 billion (Q12022) to $217 million (Q22022). In Q4 2021, trading volumes stood at $547 billion.
• Net revenue tumbled from $1,165 million in Q1 to $803 million in Q2. In Q4 2021, Coinbase had net revenue of $2,490 million.
• Following a net income of $840 million in Q4 2021, Coinbase saw net losses in the first and second quarters of 2022. In Q2, the net loss increased from a Q1 $430 million to $1,094 million.

While the numbers disappointed, the exchange holds USD resources totaling $6,154 million. As of June 30, 2022, total current assets stood at $102,162.3 million versus total current liabilities of $96,194.3 million. The exchange remains well capitalized, when considering long-term liabilities, including long-term debt of $3,389 million.

For Q3, the exchange has given a gloomier outlook, with projections pointing to a continued downtrend from the solid Q4 2021 numbers.

• MTU to fall lower in Q3. In July, MTUs fell from a second-quarter 9.0 million to 8.0 million.
• Trading volumes to trend lower, considering a July 2022 trading volume of $51 billion.

Shares tumbled through the US session, with further declines in the after-hours session.

On Tuesday, COIN tumbled by 10.55%, with shares falling by a further 5.45% in after-hours trading.

The latest results come at a tough time for Coinbase, which faces increased regulatory scrutiny and shareholder and user revolt.

Coinbase Faces Scrutiny from Regulators, Customers, and Shareholders

In July, news of the SEC investigating Coinbase on suspicion of listing unregistered securities hit the wires. The news broke shortly after reports of the SEC filing charges against former Coinbase employees for insider trading.

With the exchange under the watchful eye of the SEC, Coinbase users and shareholders are also targeting the exchange.

In March, Coinbase found itself in the unusual position of having to face a class action filed, not by the SEC but by three Coinbase users.

Plaintiffs Christopher Underwood, Louis Oberlander, and Henry Rodriquez filed a claim against Coinbase Global Inc., Coinbase Inc., and Coinbase CEO Brian Armstrong.

The class action listed 79 tokens, alleging that the tokens are securities. Other claims within the class-action include:

• Coinbase lists and sells securities but is not registered as a securities exchange.
• Digital assets listed on Coinbase are securities.

On August 4, Coinbase faced a new lawsuit, this time from a Coinbase shareholder. The Coinbase shareholder seeks damages from company executives and board members. Plaintiff Donald Kocher filed the action against former and current officers and directors for,

• Violations of the Securities Act of 1933,
• Breaches of fiduciary responsibilities,
• Unjust enrichment,
• Abuse of control, and
• Gross mismanagement.

While the SEC investigation will be of concern, a recent trend of customer and shareholder filings against crypto-related firms could incentivize the SEC to clamp down on crypto exchanges.

Coinbase has seen its share price tumble by 61% year-to-date. The SEC investigation could place further downward pressure, leading other shareholders to join Donald Kocher in filing claims.