Coinbase Tells Investors to Remain Calm, Focus on Long Term As Trading Drops 29%

In the world of cryptocurrency, where volatility is both the norm and a double-edged sword for trading firms like Coinbase, the third quarter may be looked back upon as either a harbinger or a missed opportunity.

This, as the Delaware-based firm said that the mid-summer swoon in sentiment that saw bitcoin and other digital currencies falling as much as 50% resulted in a sharply slower environment than what it saw in Q2.

Although Bitcoin has recently rebounded and is close to its all-time highs again, the trailing quarter should be seen as a reminder that this rapidly emerging asset class is still emerging — be that on the sentiment, regulatory or product fronts.

“You’re seeing a really strong and accelerating pace of crypto adoption globally, Coinbase Co-Founder and CEO Brian Armstrong said Tuesday (Nov. 9), likening this phase of digital currency to the adoption of the Internet 25 or 30 years ago, noting that crypto usage globally had more than doubled in the first half of this year to over 200 million people.

As much as Coinbase went to lengths to reassure customers — and the world — it stressed that these types of swings are to be expected, adding that it still considers this to be “the early days of the crypto-economy,” which it insists is still growing, innovating and offering ample long term opportunity for Coinbase to thrive.

To do so, Armstrong said the company is focusing on four key areas; products, customer service, reliability and a focus on policy, government relations and regulation.

On the latter, Armstrong said working with regulators was a long-standing tradition for the company. It seeks to get licenses and be the most trusted crypto platform while serving as a resource to help educate folks worldwide about how this industry can be something very positive for the world.

Metrics on the Move

Officially, Coinbase said its trading volumes declined 29% for the three months ending Sept. 30, a retreat, it stressed, that was less severe than the 37% drop experienced by the broader crypto market. At the same time, its verified user base grew to 73 million, while its retail Monthly Transacting Users (MTUs) slid to 7.4 million in Q3, which was down 1.4 million from Q2 but more than triple where it was one year ago.

Similarly, the sequential or quarter-on-quarter declines Coinbase experienced in revenue and net income in Q3 were dwarfed by the exponential annual gains it delivered on the top and bottom line, including in newer business areas such as its NFT marketplace, direct deposit and subscriptions and services.  On that front, Coinbase delivered 41% revenue growth from Q2 and a 15-fold increase from where it was in Q3 2020.

“Today we see 59% of our trading volume coming from other crypto assets,” Chief Financial Officer Alesia Haas said on the webcast. “We don’t know precisely which asset customers are going to adopt so our strategy of wanting to support all assets will give our customers the broadest and deepest choices to use them,” she said, noting that the decline in its average trading fees was the result of less activity by small or “low dollar volume traders” who pay higher trading costs.

Living With Volatility

Not unlike the volatility of bitcoin or ethereum, shares of Coinbase faced its own spell of volatility in the wake of the earnings report, trading down as much as 15% after its revenue figures came in lower than what some analysts had projected. Even so, that after-hours decline came after a recent rally that had lifted shares of Coinbase by 45% in the past month alone, lifting its market value to nearly $95 billion.

In a letter to shareholders included with its earnings release and webcast, Coinbase reiterated its call for investors to keep things in context.

“As our year-to-date results have clearly demonstrated, our business is volatile. Coinbase is not a quarter-to-quarter investment, but rather a long-term investment in the growth of the crypto economy and our ability to serve users through our products and services,” the letter summarized. “We encourage our investors to take this point of view.”