What happened
Big Crypto Exchange Shares coin base (COIN 12.99%) fell more than 81% in the first six months of 2022, according to data from S&P Global Market Intelligence. The main reason for the massive drop is the drop in cryptocurrency prices and less crypto trading activity.
so what
As the largest U.S. crypto exchange, Coinbase derives the bulk of its revenue from retail commissions, so the stock naturally has a good correlation with the value and momentum of the larger cryptocurrencies. Bitcoin (BTC 2.74%).
Bitcoin’s price fell nearly 58% in the first half of the year as inflation mounted and the Federal Reserve sharply hiked its benchmark federal funds rate. This generally doesn’t bode well for riskier assets, as it generates higher returns than safer assets.
In the first quarter of this year, Coinbase reported revenue of $1.16 billion, compared to about $2.5 billion in the fourth quarter of 2021 and about $1.6 billion in the first quarter of 2021. The main reason was a Decrease in revenue from retail transactions.
But the fall in the price of bitcoin and other cryptocurrencies wasn’t the only problem. Coinbase has also seen significant reductions in retail fees due to a plethora of competitors in this space. According to their website, Coinbase currently charges a 1% fee on all crypto transactions. This number used to be as high as 4%.
Not long ago, some of Coinbase’s competitors eliminated fees on certain crypto trades entirely, leading investors to fear that Coinbase’s fees could continue to drop.
what now
While Coinbase has suffered during the crypto winter, there’s no doubt that the company needs to figure out how to diversify revenue, with fees facing further compression.
Coinbase is clearly aware of the situation and has made efforts to address this, including launching a subscription service and providing more ways to use the platform than just trading.
CEO Brian Armstrong noted on the company’s most recent conference call that 54% of active users are on Coinbase to do something other than just trading, including interacting with, cultivating, and interacting with decentralized applications like traders.
While Coinbase, with its size and brand strength, may face more pressure in the near term, I think it will continue to find ways to stay relevant as long as the cryptocurrency stays relevant.
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