Crypto trading platform Coinbase is expected to report better-than-expected earnings for Q2, despite facing legal pressure and challenges in the industry. According to financial data company FactSet, revenues are projected to decline to $629 million from $773 million in the previous quarter due to lower trading volumes.
Additionally, earnings per share are predicted to fall by $0.75 compared to $0.34 in the previous quarter. However, British Bank Barclays anticipates that Coinbase’s “adjusted EBITDA” (Earnings Before Interest, Taxes, Depreciation, and Amortization) will outperform expectations. Last month, Barclays downgraded Coinbase’s stock, citing near-term pressures on earnings.
The bank’s analysts stated that although Coinbase is likely to succeed in the broader crypto ecosystem in the long term, current fundamentals remain challenging. The decline in trading volumes and pressure on Coinbase’s partner stablecoin, USD Coin (USDC), were identified as threats to revenue. Coinbase offers 4% rewards to users holding USDC on its platform and earns a portion of interest income generated from those tokens and reserves.
In Q1, Coinbase generated $199 million (27%) from such interest income, but Berenberg analyst Mark Palmer suggests that this figure likely decreased in Q2 due to a decline in the market cap of USDC. Despite these challenges, Coinbase’s stock, COIN, has performed well in 2023, appreciating 173% year-to-date.
The price of COIN shares is known to correlate with the price of Bitcoin (BTC), which has increased by 76% this year. Coinbase also saw a rally after several Bitcoin spot ETF applicants, including BlackRock, selected the exchange as a surveillance-sharing partner. Although Coinbase faced a lawsuit from the Securities and Exchange Commission (SEC) in June, its legal prospects have appeared more promising following Ripple’s legal victory against the agency. The court ruling determined that XRP token is not a security, suggesting that many of the alleged “securities” on Coinbase’s platform may also be safe from regulatory attacks.
