Coinbase is the most popular crypto company to list on a recognized exchange. The company, itself an exchange, was listed on the NASDAQ earlier this year in a truly historic event.
Like every company that ever goes public, Coinbase had its doubters. It definitely didn’t help that the company was listed at a time when the market was getting ready for a huge correction. When Coinbase eventually listed, its stock didn’t exactly perform up to expectations. But, it kept going.
Now that it’s been over a financial quarter since Coinbase’s stock got listed, it is worth checking out how the company has performed so far and what it plans to do moving forward. Are things looking bullish for COIN, or is there cause to be alarmed?
Strong Results for Q2 2021
In the second quarter of 2021, Coinbase reported much better earnings than analysts expected. The company hit $2.3 billion in revenues, marking a 27 percent jump from the first quarter and an astronomical jump of 1,042 percent over the second quarter of 2020.
Net income for Coinbase also jumped from $32 million to $1.6 billion, meaning that Coinbase earned more than several older and more traditional exchanges like the Intercontinental Exchange (which runs the New York Stock Exchange) and the Chicago Mercantile Exchange Group (CME).
The positive results are due in no small part to the increased Bitcoin buying from several large entities. Coinbase reported that its monthly transaction volumes climbed to $8.1 million - up from $6.1 million in the first quarter of the year/ Trading volumes rose to $462 billion for the quarter - up from $335 billion in the first quarter.
In an earnings call, Coinbase chief executive Brian Armstrong explained that the company is looking to expand its operations in the future. In part, Armstrong explained:
"We're also focusing on international expansion, another form of decentralization, and just listing more and more assets. We want to be the Amazon of assets, list every asset out there in crypto that's legal."
Coinbase also said in a letter to shareholders that it plans to explore the decentralized finance (DeFi) space. The company expects that mainstream institutions and customers will soon be using DeFi technology, cutting intermediaries in transactions, and optimizing time.
Moving Forward Carefully
Despite the good news, Coinbase is also cautiously optimistic. The company warned that a reduction in volatility across the crypto market could impact its earnings going forward.
Coinbase’s monthly transacting users - essentially, retail traders who use the exchange at least once a month - jumped by 44 percent to hit 8.8 million in the year’s second quarter. But, net monthly transacting users dropped in July and August. This caused the company to reduce its estimate for annual users from 9 million to 8 million.
With Bitcoin dropping in July, trading volumes across Coinbase also shrunk. Analysts are optimistic that this will be fixed once the market rally kicks into high gear, but there’s always the question of when the next market correction will be - and what will happen at that point.
With regulatory uncertainty still following the crypto market, there is the question of how new laws could affect traders and crypto users. Unfavorable regulations will undoubtedly affect Coinbase, and the company itself knows that.
Preparing for the Gold Rush
No matter how mixed its results have been, Coinbase remains focused on weathering any future storms that could arise.
This month, the company’s chief financial officer Alesia Has told The Wall Street Journal that they had stockpiled $4 billion in cash just in case retail trading volumes drop and several other operating costs rise - especially due to regulatory challenges.
Haas explained that Coinabse hasn’t seen any danger yet. However, they believe that it is important to build cash reserves and prepare for the worst-case scenario - especially now when times seem to be good. Coinbase has also conducted necessary stress tests to meet the costs of cyber attacks, compliance issues, and possible reductions in trading volumes. Describing this as a “crypto winter,” Haas expressed confidence in the company’s capacity to handle anything.
The next day, Armstrong tweeted that Coinbase will be adding $500 million worth of crypto to its balance sheet. Armstrong explained that the company’s board had approved the move, with Coinbase planning to invest a tenth of all profits generated into cryptocurrencies going forward. Even better, the company hopes to increase the cut of all profits invested in crypto.
“We recently received board approval to purchase over $500M of crypto on our balance sheet to add to our existing holdings. And we'll be investing 10% of all profit going forward in crypto. I expect this percentage to keep growing over time as the cryptoeconomy matures,” Armstrong said.
On the same day, the company published a blog post, explaining that the move will establish it as the first publicly-traded company to hold Ether. Proof-of-stake assets, and DeFi tokens on its balance sheet. The company once again reaffirmed its commitment to future investments, saying:
“Our investments will be continually deployed over a multi-year window using a dollar cost averaging strategy. We are long term investors and will only divest under select circumstances, such as an asset delisting from our platform.”
Coinbase said that the level of customer holdings will determine future investments. This means that if users make more deposits of an asset, Coinbase might add it to its balance sheet as well.