Bitcoin may be nearing all-time highs, but for now, crypto traders are largely staying on the sidelines.
That's causing trouble for crypto trading platform Coinbase Global, which after the close on Wednesday reported third-quarter earnings that missed analysts' estimates for profit and revenue.
Coinbase reported earnings of 28 cents per share in the quarter, missing analysts' estimates of 45 cents per share. It had $1.21 billion in quarterly revenue, below the $1.26 billion expected by analysts, according to FactSet.
Coinbase had earnings of 14 cents a share in the second quarter and a 1 cent loss in the third quarter of last year. The company had revenue of $674 million in the third quarter last year.
Shares of Coinbase fell 5% in after-hours trading before partially recovering. As of 6 p.m. Eastern, shares were down 4.8% to $201.58, building on a 3.6% decline during regular trading hours.
The company also announced a stock buyback program of up to $1 billion, which the company said its board had approved earlier this month.
Mizuho analyst Dan Dolev in a research note after the report said he expected "a modestly negative stock reaction," pointing to compression in the company's trading fees and lower-than-expected pickup in the company's non-trading revenue. Mizuho has an "Underperform" rating on the stock with a $160 price target.
This year started off with a bang in the crypto markets. The Securities and Exchange Commission approved the first spot Bitcoin exchange-traded funds, and some investors piled into the largest crypto and other tokens with the expectation that a flurry of interest from institutions would drive markets higher.
The ETFs were wildly successful, helping to drive up Bitcoin and Coinbase, which earns fees through custodying Bitcoin for the ETFs. But even though Bitcoin has kept marching higher -- surpassing $73,000 on Tuesday -- crypto trading volume has remained relatively stagnant.
Coinbase itself saw trading volume of $185 billion in the third quarter, down 18% from the quarter before. The biggest decrease came from institutional investors, whose trading fell 20%.
In an interview, Coinbase Chief Financial Officer Alesia Haas said lower crypto volatility was keeping some advanced traders on the sidelines.
Mainstream financial firms, including Fidelity Investments and Robinhood Markets, have in recent years added crypto trading to their offerings. But Coinbase said its share of fiat-to-crypto trading volume among U.S. consumers remained steady between the second and third quarters. Haas said the company had not changed its pricing.
Beyond trading, Coinbase said it has continued to diversify its revenue streams. The company co-sponsors the stablecoin USDC, whose value is pegged to the dollar and is backed by reserves that Coinbase earns interest from. Coinbase also allows customers to "stake" tokens through the company in exchange for interest, which the company gets a cut of.
Coinbase's subscription and services revenue, which includes USDC and staking, was $556 million in the third quarter, down 7% from the second quarter. Coinbase said that the decline was due to lower average crypto asset prices and that customers had actually increased their activity in the area.
Coinbase shares have lately been stuck in a range. The stock rose more than 50% between the start of 2024 and March 25, when it hit a high of $283.48. Since then, shares have fallen 26%.
USDC and staking have also drawn the attention of regulators, and the outcome of the November election could have at least some impact on how sustainable they are.
Former President Donald Trump has promised that if elected to the presidency, he will fire Securities and Exchange Commission Chair Gary Gensler and usher in a new era of pro-crypto policies in the U.S. Coinbase is among the crypto companies currently being sued by the SEC for allegedly operating as an unregistered securities exchange. Coinbase denies that it has broken the law.
Though Vice President Kamala Harris is less likely than Trump to remove Gensler from his post if she is elected president, her campaign has said she'd support giving regulatory clarity to the industry.
"It is almost guaranteed that we have a pro-crypto Congress," said Haas, who said that some crypto developers have been wary of starting companies in the U.S. because of a lack of regulatory clarity.
A more friendly SEC could also be a catalyst for Coinbase. The SEC in the past has taken the position that the vast majority of cryptocurrencies are securities, apart from Bitcoin and perhaps Ether, and must register with the agency -- a process that crypto firms say is impossible to accomplish in practice. With most courts yet to decide whether the law is on the SEC's or Coinbase's side, that puts a huge swath of the firm's revenue at risk. Haas said it's rare for the SEC to pull back on existing lawsuits after a change in administration and that the company expected to continue fighting in the courts.
The company has also launched derivatives trading for foreign customers, an offering that company executives have said is an important growth area for the future. Haas said that business has continued to grow but isn't yet material to the company's earnings.
While more than a third of Coinbase's transaction volume comes from Bitcoin trading, so-called alt coins represent an increasingly important area where Coinbase makes money. In the third quarter, crypto assets other than Bitcoin and Ethereum accounted for 49% of the company's transaction revenue, up from 46% in the third quarter of 2023. Much of those revenues could be at risk if a court sides with the SEC and Congress doesn't pass a law clarifying their status.
For Coinbase, the election can't come soon enough.
