Coinbase $1.1bn loss kills crypto market rally

Coinbase logo of a cryptocurrency company is seen on a smartphone screen.
Coinbase is the world's second-largest crypto exchange. Photo Illustration: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images

The wheels have fallen off this week's crypto rally after Coinbase's painful earnings call.

Coinbase (COIN) posted a steep second-quarter slump that revealed the true scale of damage from losses in trading fees following months of crypto-meltdown.

Tuesday's earnings call revealed a billion-dollar second-quarter revenue loss for the world's second-largest crypto exchange, with COIN shares bleeding deeply into the red.

The combined gain in expenses at the 'distributed company' (it has no headquarters and all employees work remotely) and the decline in top-line income from the sharp loss in trading fees has put the company on a back footing.

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The dismal showing in the earnings call came as no surprise to many, and large shareholders, such as Cathie Wood's Ark Invest, dumped their stock before the revenue and earnings announcement.

On July 26, Ark Investment sold over 1.4 million shares in Coinbase worth $75 million.

In reaction to the news, the combined cryptocurrency market cap fell Wednesday by 4%, ending a rally which began on Wednesday, August 3 with the announcement of investment giant BlackRock's (BLK) partnership with Coinbase.

Bitcoin (USD-BTC) fell on Wednesday by 3.7% to $22,936, as of the time of writing.

Ethereum (ETH-USD) tumbled further, down 5.1% to $1,683 as of the time of writing.

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Coinbase's poor showing was the consequence of a decline in investor activity following the terra/Luna crash in May and the subsequent calamities surrounding crypto firms Voyager Digital (VOYG.TO), the Celsius Network (CEL-USD) and Three Arrows Capital (3AC).

The earnings call revealed that the revenue of the world's second-largest cryptocurrency declined almost 64% in the second quarter as cryptocurrency prices fell and exchange volume slumped.

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Loss in earnings per share were greater than expected. Shares in Coinbase saw a loss of $4.98 per share, versus an expected loss of $2.65 per share by financial markets data analysts, Refinitiv.

The company's second-quarter revenue was $802.6 million, down from the $832.2 million expected by analysts at Refinitiv.

Shares in Coinbase (COIN) fell 10.55% on Tuesday to $87.68 after a day of trading in New York.

The cryptocurrency exchange, which is listed on NASDAQ (^IXIC), saw a large gain in costs compared to the same period in 2021.

Coinbase’s net revenue declined from $2.033 billion to $802.6 million, a drop of around 60%.

In general, crypto trading activity has slowed across all exchanges, and trading fees are Coinbase’s main revenue stream.

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The decline in monthly transacting users fell to 9 million from 9.2 million between the first and second quarter of 2022.

This correlated with a total trading volume decline on Coinbase, from $309 billion to $217 billion.

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