Coinbase’s Eye Watering Earnings Showed How Unhedged and Vulnerable U.S. Prime Crypto Exchange Was

Shares of Coinbase (COIN) fell on Tuesday, August 9, after the largest U.S. cryptocurrency exchange reported a loss of more than $1 billion in Q2 and fell short of earnings estimates by analysts by a wide margin.

In Q2, the cryptocurrency exchange reported a loss of $4.98 per share against a loss of $2.65 per share, as Refinitiv analysts expected. Its revenue came in at $808.3 million versus $832.2 million expected. Retail transaction revenue was $616.2 million, 66% below the consensus estimate of $667.1 million.

YTD, Coinbase's revenue is down nearly 64% as investors fled the cryptocurrency market after its dramatic growth last year.

According to a letter to shareholders, Coinbase posted a net loss of $1.1 billion compared to a net profit of $1.59 billion in the same quarter last year. The company's loss amounted to $377 million: it was associated with the depreciation of cryptocurrencies. Coinbase's own cryptocurrency holdings were worth $428 million at the end of June, compared to about $1 billion at the end of March. More than 40% of cryptocurrency assets are in Bitcoins.

Most dramatically, the company reported a decrease during this period in the number of users, MAU, making monthly transactions: in Q1, only 9 million compared to 9.2 million in the previous quarter, which, however, exceeded the consensus estimate of 8.7 million.

Coinbase shares fell 75% over Q2, while BTCUSD fell about 59%. Coinbase said it will extend its hiring moratorium for the foreseeable future and cut headcount by 18%. The number of assets on its platform fell from $256 billion to $96 billion in the quarter, largely due to pressure on cryptocurrency prices.

Coinbase has also been forced to downgrade its forecast for the full year. The company now expects to keep from 7 to 9 million users making monthly transactions, up from a range of 5 to 15 million just 3 months ago. The company's management said it expects average transaction revenue per user to be around $20. Also, in order to reduce marketing costs, the company uses less media advertisements and bonuses, while looking for ways to fill the unpaid traffic.