To The Moon

$Coinbase Global, Inc.(COIN)$ announced its Q3 earnings yesterday, and the results fell short of expectations. As a result, the stock dropped 4.84% after hours.

Coinbase’s revenue and profit were both below what analysts had anticipated. This disappointing report contrasts sharply with the recent surge in Bitcoin's price.

In 2023, Bitcoin's price has soared by 70%, while Coinbase’s stock has only risen by 22%. So, why is Coinbase lagging behind Bitcoin?

Performance Comparison

If we compare their trends, both Coinbase and Bitcoin show similar patterns. However, Bitcoin is nearing its all-time high, while Coinbase is still far from its peak.

Looking back over the last two years, Coinbase plummeted 86% in 2022, compared to Bitcoin’s 64% drop. In 2023, Coinbase has skyrocketed by 391%, while Bitcoin gained 157%.

In 2022, Bitcoin spent most of its time consolidating at the bottom. In 2023, though, it’s been on a steady upward trend.

Currently, the situation is somewhat like 2022. Other than the initial spike at the start of the year, the market has been relatively flat.

This means when Bitcoin is trading sideways, Coinbase tends to underperform. But during strong upward trends, Coinbase can significantly outperform Bitcoin.

Trading Volume Insights

This trend is also reflected in trading volumes. In Q3 of this year, Coinbase reported a total trading volume of $185 billion, a 143% year-over-year increase, but an 18% drop from the previous quarter. This is still well below the $547 billion in Q4 2021.

In Q3, Coinbase reported $1.2 billion in revenue, marking a 79% year-over-year increase but a 17% decline from the previous quarter. This figure is still far from the $2.5 billion revenue in Q4 2021.

While Bitcoin’s price is hovering near its all-time high, the lower volatility has caused Coinbase's revenue growth to lag behind Bitcoin’s price increases, which in turn negatively impacted its stock performance.

Competitive Pressure

Coinbase is also feeling the heat from fierce competition. According to Sensor Tower, the monthly active users for the Coinbase app fell 6% year-over-year, while Binance, the world’s largest crypto exchange, saw a 20% increase. Even more striking, Coinbase’s app downloads grew by 47% compared to Binance’s 94%.

Research from CCData highlights that Coinbase’s market share in the spot trading segment dropped from 4.51% to 4.18% in Q3, partially due to the emergence of competitors like Crypto.com and Bybit, which have listed more tokens. In fact, September marked Coinbase’s lowest spot market share since June 2022.

Some Bright Spots

Despite these challenges, there are positive indicators for Coinbase. The average weekly usage per user grew by 28%, while Binance saw a 7% decline. Additionally, Coinbase's market share in derivatives increased from 1.57% to 1.98% over the same period.

Coinbase is also diversifying its revenue streams, with subscription and service revenue reaching $556 million in Q3, a 66% year-over-year increase. This revenue is less volatile than trading fees.

Q4 Outlook

Looking ahead, Coinbase’s guidance for Q4 estimates subscription and service revenue between $505 million and $585 million, indicating stability and potential growth.

Even though Q3 results didn’t meet expectations and Coinbase’s gains in 2024 haven’t outpaced Bitcoin, there’s potential for benefit if Bitcoin’s price continues to rise.

With the U.S. elections approaching in early November, a possible Trump victory could intensify Bitcoin’s volatility, likely boosting Coinbase's trading volume.

In the long run, the direction of Bitcoin—whether it rises or falls—remains uncertain. Given Bitcoin's significant cyclical volatility, the best time to invest in Coinbase may be during market panic surrounding Bitcoin, similar to other stock exchanges but with lower volatility.