According to Mizuho, Coinbase, facing a decline in trading activity, might need more revenue. The scarcity of crypto traders poses a challenge for the third-quarter report, leading analysts to revise revenue estimates by 7% to $609 million; this contrasts with the broader analyst expectation of $682 million, as per FactSet.
The reduction is attributed to lower-than-expected trading volume on Coinbase, the largest U.S. customer-serving crypto exchange. Mizuho estimates around $72 billion in volume for July through September, down from the earlier estimate of $88 billion.
According to Mizuho analysts, the anticipated decline in trading volume and an expected decrease in retail trading is anticipated to impact third-quarter revenue significantly. Coinbase, acknowledging the challenge, has expressed efforts to diversify its business across various segments of the crypto ecosystem, aiming to reduce dependency on trading activity for revenue.
While declining volumes affect Coinbase, this trend is not unique to the platform, with crypto-trading platforms experiencing similar challenges throughout 2023 despite the recovery in Bitcoin and other token prices. Despite a 66% rise in Bitcoin prices to approximately $27,500 this year, Coinbase’s stock has more than doubled, reaching around $72.50. However, Mizuho analysts maintain an underperform rating with a $27 price target.
Beyond trading challenges, Coinbase contends with regulatory scrutiny, including a June lawsuit from the Securities and Exchange Commission alleging unregistered securities exchange operations. Despite the regulatory headwinds, Coinbase looks to alternative revenue streams in the crypto industry, such as staking services and partnerships like the USDC stablecoin, which generates interest income through holdings in U.S. Treasury bonds and other assets. Despite these long-term strategies, the short-term fate of Coinbase remains closely tied to the interest of retail traders, which is currently subdued.
The platform faces challenges as retail investor interest wanes, with token prices showing stagnation and market makers scaling back due to regulatory concerns, resulting in less favourable spreads and costs for retail traders. Coinbase’s Chief Financial Officer, Alesia Haas, acknowledges the impact of low volatility, noting that investors tend to hold rather than actively trade during such periods.