Coinbase cautions on trading volume outlook as revenue tops estimate

Most of Coinbase Global's revenue comes from trading, especially by individuals. PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Coinbase Global shares slumped about 3 per cent in post-market trading after the biggest US cryptocurrency exchange cautioned that trading volume will decline in the first quarter.

The disappointment comes even after the company reported that revenue jumped to US$2.5 billion (S$3.4 billion) in the fourth quarter, compared with the US$2 billion average estimate by analysts. The closely watched metric of monthly transacting users was 11.4 million, beating the average analyst estimate of 9.8 million and up from 7.4 million in the third quarter.

Coinbase wrote in an investor letter that it believes "retail monthly transacting users and total trading volume will be lower" in the first quarter compared with the fourth quarter.

The exchange has already seen a decline in crypto asset volatility and prices so far in the current quarter.

"Where the crypto markets are, the outlook for 2022 doesn't look as good as for 2021," said Mr John Todaro, an analyst with Needham & Co, who has a "buy" rating on Coinbase.

Coinbase has increased its own corporate crypto investment by nearly US$350 million in the last few weeks, chief financial officer Alesia Haas said on an earnings conference call, without specifying the coins it bought.

Coinbase's shares have mirrored the moves of Bitcoin since the company went public last April. The stock has dropped about 30 per cent this year amid a retreat in cryptocurrency prices. Coinbase slumped to around US$172.02 in after-hours trading.

For the full year, Coinbase expects average transaction revenue per user to fall to "pre-2021 levels". It forecasts a wide range of annual average retail monthly transacting users of five million to 15 million.

"It's too early to call," Ms Haas said in an interview.

"We continue to not see any pricing pressure on our core retail products," she added, reiterating the company's earlier message that there will be fee compression over the long term.

Investors have been concerned about a potential crypto winter, which could dampen enthusiasm from retail traders. Crypto has been caught in a risk-off trade due to macroeconomic conditions such as concerns about inflation, interest rate hikes and geopolitical instability, but "we are very experienced in our ability to execute through volatility", Ms Haas said.

Most of the company's revenue comes from trading, especially by individuals. Coinbase has been diversifying revenue streams through subscriptions and services such as custody. It is preparing to launch a marketplace for non-fungible tokens and has entered a partnership to allow users to make purchases through cards from Mastercard. The company is not providing a launch date for the platform yet.

The exchange said that so-called altcoins - tokens other than Bitcoin and Ethereum - made up 68 per cent of trading volume in the fourth quarter, the highest percentage reported.

Coinbase has been laying the groundwork to expand into derivatives. In January, it acquired futures exchange FairX, a regulated entity, in its biggest step yet towards expanding into crypto derivatives. Exchanges outside the United States such as Binance and OKEx have the lion's share of the derivatives market. FTX.US, one of Coinbase's US competitors, also offers derivatives trading through its acquisition of LedgerX.

Join ST's Telegram channel and get the latest breaking news delivered to you.