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Coinbase blames sagging crypto volumes as revenue plummets

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Coinbase suffered sharp declines in revenues and trading volumes in the third quarter, as the washout in bitcoin and other digital assets has reversed the fortunes of the once fast-growing cryptocurrency exchange.

The US-listed company acknowledged “another tough quarter” as it reported net revenue of $576mn, down from more than $1.2bn a year before and from $803mn in the previous quarter. Coinbase lost $545mn in the quarter, compared to a net profit of $406mn a year before.

The plunge in crypto markets earlier this year continues to take its toll on trading venues such as Coinbase. Tokens such as bitcoin and ether have lost about 70 per cent of their value since their all-time high last year. Trading volumes and monthly transacting users at Coinbase dropped by 27 per cent and 6 per cent, respectively, from the second to the third quarter.

The price crash was followed by rangebound trading for popular crypto tokens. Recent figures shared by data provider CryptoCompare showed that average annualized volatility for bitcoin hit its lowest point since October 2020. The lack of price action has placed renewed pressure on Coinbase, which described crypto asset volatility as a “key driver of our retail trading volume” in a letter to shareholders.

“This was a very difficult quarter for Coinbase as macro and crypto headwinds are front and centre. The user base is declining, and that is not a storybook quarter for the Street,” said Dan Ives, senior equity analyst at Wedbush Securities.

Coinbase in June announced it would cut nearly a fifth of its workforce, which amounted to more than 1,000 employees. Chief executive Brian Armstrong at the time admitted the exchange grew “too quickly”, finishing 2021 with over 3,700 employees. It also rescinded job offers at the exchange as part of the sharp pullback.

Earlier this week Coinbase chief product officer Surojit Chatterjee said he was stepping down, saying “now it’s time to get off the ride and catch my breath”. Chatterjee will continue to serve as an adviser to Armstrong.

Coinbase also cited “macroeconomic factors” and “geopolitical factors” — including the war in Ukraine — as weighing heavily on financial and crypto markets.

“Crypto tried to distance itself from the mainstream economy, making claims that bitcoin was a hedge against inflation and that crypto would continue to exist almost in its own bubble,” said Charley Cooper, managing director at blockchain group R3. “I do think it’s important to put into context that the crypto world is increasingly impacted by the broader world of economics.”

Assets on the Coinbase platform rose by $5bn from the second quarter to $101bn. Despite a difficult financial year, it agreed a deal with asset management group BlackRock in August in order to give the latter’s clients more seamless access to digital asset markets. The move — considered a victory for Coinbase — was seen as a sign that institutional appetite for digital assets remained despite the downturn in prices.