Coinbase transaction volume, revenue slump on retail indifference

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The Coinbase (NASDAQ: COIN) digital asset exchange saw transactions and revenue tumble in the third quarter of 2024 as retail customers showed zero sign of regaining interest in all things ‘crypto.’

Figures released October 30 show Coinbase generated revenue of just over $1.2 billion in the three months ending September 30, down from $1.45 billion in Q2 and from $1.64 billion in Q1. But net profits came at $75 million, more than twice Q2’s $36 million, largely due to a $71 million reduction in operating expenses.

Investors were less than impressed. Coinbase shares finished the day’s trading down 3.6% and fell another 4.8% in after-hours trading, with analysts expressing unease at the degree to which Coinbase’s trading volume has declined.

Transaction revenue fell nearly 27% from Q2 to $572.5 million as transaction volume fell 18% to $185 billion. While retail trading volume fell 8%, retail revenue tumbled 27.3% to $488.3 million. Institutional volume was off 20%, pushing revenue down 13% to $55.3 million.

Monthly transacting users (MTUs) fell from 8.2 million in Q2 to 7.8 million in Q3. Bear in mind that Coinbase’s overly broad definition of ‘transacting’ includes individuals who (a) passively earn rewards from staking and/or (b) withdraw cash/tokens from their accounts. So even counting those laggards, the user numbers aren’t good.

After leaning heavily on utility-free memecoins for the bulk of transaction volume over the past year, the ‘other crypto assets’ segment saw its share fall seven points from Q2 to 33%, although they accounted for 38% (-4 points) of transaction revenue.

Share of volume for BTC was up two points to 37%, while revenue gained four points to 37%. Users’ decreased interest in Ethereum (ETH) was on full display, with volume flat at 15% and revenue down one point to 16%. Solana (SOL) somehow doesn’t warrant a standalone volume stat but saw its revenue share increase one point to 11%.

There was one eye-opener on the trading volume chart, as the Tether (USDT) stablecoin hit 15% of the total, up five points (aka 50%) from Q2. It seems Coinbase is aping its west coast rival Kraken to serve as a fiat off-ramp for Tether whales. That could prove uncomfortable should recent reports of U.S. law enforcement preparing charges against Tether prove accurate.

Asked by an analyst about the USDT surge and whether the exchange was “seeing a shift towards Tether away from USDC,” Coinbase CFO Alesia Haas denied there was any shift, saying Coinbase has just “made it easier to trade stable pairs on our platform.” Haas quickly pivoted to hyping USDC as “the fastest-growing major stablecoin in Q3” and “a more trusted stablecoin” than Tether. (Hit a nerve, clearly.)

Base! How low can you go?

The ‘other transaction revenue’ category—which includes Coinbase’s Ethereum layer-2 network Base—saw its revenue tumble 35% to $34 million. Coinbase blamed “lower Base sequencer fee revenue” as a reduction in the cost of transaction fees undid a 55% rise in Base’s transaction volume.

Coinbase remains Base’s sole sequencer (transaction processor), despite ongoing promises to welcome other sequencers “over time” and warnings by Ethereum co-founder Vitalik Buterin that L2s need to ditch their “training wheels” and decentralize ASAP.  

Regardless, Base recently celebrated a couple of milestones, including topping Arbitrum as the L2 with the highest total value locked (TVL). As of October 30, Base’s TVL is around $2.66 billion, while Arbitrum is around $2.45 billion. Base also has over 1.2 million daily active addresses, 3x that of Arbitrum.

Giving away a billion, buying back a billion

Coinbase’s overall ‘subscription and services revenue’ was down 7.1% to $556 million, with the individual components all negative save one. Stablecoin revenue enjoyed a modest 2.7% rise to $247 million, underscoring the importance of Coinbase’s partnership with Circle, the issuer of the USDC stablecoin.

Of the category’s other components, blockchain rewards (aka token staking) took the biggest hit, falling 16.3% to $154.8 million. Coinbase blamed the downturn on “lower average crypto asset prices—notably ETH and SOL” during Q3.

Coinbase serves as digital asset custodian for most of the BTC and ETH exchange-traded funds (ETF), but that didn’t stop custody revenue from falling 8% to $32 million despite “growth in average native unit balances.”

As mentioned, Coinbase was able to trim its expenses in Q3, and it didn’t hurt that Coinbase’s effective tax rate was -10% rather than the 21% corporate rate. Coinbase said the negative rate was due to “deductible stock-based compensation” and R&D credits.

Coinbase doled out nearly one-quarter of a billion dollars in stock-based comps in Q3 and expects to dole out another $227 million in Q4. That puts the company on pace for a total of $935 million in comps for the year as a whole.

Clearly anticipating investor’s negative reaction to the bad quarter, Coinbase announced plans to repurchase as much as $1 billion of its shares. But Coinbase hedged that the timing and amount of these repurchases would “depend on market conditions” and left open the possibility that it might not buy back anything.

Did somebody say SBF?

Coinbase says it generated about $190 million in total transaction revenue in October, putting it on pace to come in just under its Q3 total when the full Q4 numbers are tallied. Again, this doesn’t suggest a groundswell of retail demand and would mark the third consecutive quarter of declining interest.

While the price of the BTC token has gone on a tear since the current quarter began, retail users still aren’t feeling it. With the exception of a brief spike this spring, Google (NASDAQ: GOOGL) searches for the token remain pretty much where they were for most of 2023. In other words, the current surge is being driven by institutional buyers, frustrated BTC block reward miners, and BTC hoarders like MicroStrategy’s (NASDAQ: MSTR) Michael Saylor.

Coinbase also expects its sales and marketing expenses to increase in Q4, partly due to “higher seasonal brand spend,” including its various basketball sponsorships. Speaking of, Coinbase recently announced it had signed on as the ‘official cryptocurrency platform and blockchain partner’ of the NBA’s Golden State Warriors and the Chase Center in which they play.

That Warriors/Chase partnership was previously held by the FTX exchange, whose founder, Sam Bankman-Fried, is currently languishing in a New York prison doing 25 years for the shenanigans that brought FTX to ruin. Coinbase likely hopes this isn’t history repeating itself here.

Pipped at the post

Despite Coinbase’s ‘all is well’ mantra, its falling trading volume caused it to be overtaken by rival Crypto.com, which leapfrogged both Coinbase and Bybit in recent months. Crypto.com reported a trading volume of over $139 billion in October, a new record for the exchange and more than twice Coinbase’s $57.5 billion tally. (Binance remains the 800-pound gorilla exchange with over $395 billion.)

Crypto.com’s surge—quadrupling its volume since July—came despite Coinbase having 10x the number of monthly visitors, according to Similarweb data.

Crypto.com also lists more tokens than Coinbase, likely due to the Securities and Exchange Commission (SEC) having targeted Coinbase for listing unregistered securities last year, while Crypto.com is only just joining this club. (Or maybe it’s because Coinbase just prefers listing tokens in which its venture capital arm has a stake.)

More thumbs on the scale

Just before the release of its Q3 numbers, Coinbase CEO Brian Armstrong tweeted that the exchange had “committed another $25M” to the Fairshake political action committee that will be used to support “pro-crypto candidates” in the 2026 U.S. midterm elections. The 2024 presidential vote is less than a week away, but Armstrong insisted that “we’re not slowing down post-election.”

This $25 million top-up would push Coinbase/Armstrong’s total contributions to Fairshake and two affiliated PACs since last year to around $75 million, with another $50 million apiece contributed by XRP issuer Ripple Labs and the Andreessen Horowitz (a16z) crypto-focused VC group.

Despite Armstrong’s insistence that ‘crypto’ has shed its public association with criminality, an Axios review of 59 political ads by the crypto PACs found not a single mention of digital assets, suggesting Fairshake contributors understand how many voters would be turned off by crypto bros telling them how to vote.

Even crypto fans aren’t necessarily comfortable with the scale of Coinbase’s political largesse, not to mention the sharp-elbowed nature of its advocacy, which some fear could result in a backlash down the road. Politico quoted one lobbyist expressing unease at the fact that Coinbase “tie their name to everything. It’s just Coinbase, Coinbase, Coinbase,” adding that the company “would be better served by keeping its head down a little bit.”

Please, sir, I want some more (tokens)

On the analyst call, Armstrong repeated his mantra of desiring “regulatory clarity” from U.S. federal agencies and lawmakers to unleash “a massive source of inflow of capital.”

Challenged by an analyst regarding “what can Coinbase do in a more friendly regulatory environment in the U.S. that it’s not doing now,” Coinbase’s chief legal officer Paul Grewal claimed that “you’d see listing of assets accelerate.”

Coinbase’s legal fight with the SEC is based on the SEC’s belief that Coinbase is acting as an unlicensed securities broker by offering certain tokens. Throughout this increasingly personal fight, Coinbase has framed its SEC antagonism as if it’s championing the entire digital asset sector rather than just angling for less oversight.

On October 28, Armstrong tweeted that whoever takes Gary Gensler’s place atop the SEC org chart “should withdraw all frivolous cases, and issue an apology to the American people.” Armstrong claimed this “would not undue [sic] the damage done to the country, but it would start the process of restoring trust in the SEC as an institution.”

And yet, in the most recent court ruling in the SEC’s ‘frivolous’ case against Coinbase, a federal judge found that the SEC’s “well-pleaded allegations … plausibly support the SEC’s claim that Coinbase operated as an unregistered intermediary of securities.”

We can’t wait for next year when Armstrong starts throwing millions at candidates who will appoint better judges to achieve ‘judicial clarity.’

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