Coinbase's earnings came out earlier this week and it wasn't pretty. After a big rally this month on the back their partnership with BlackRock they seem to be on the downslope again, but at this point who knows. Let's jump into the earnings and reevaluate from there.
The Numbers: Generally, they're bad. They posted a net loss of $1.1B which is their biggest since 2019. Their expenses are the highest they've ever been ($1.85B) and their revenue is back to late 2020 levels ($803M). Trading volume is back to the pre-crypto-bull-market levels of 2021. One number that's not bad though - they're still sitting on $5.7B in cash (not counting their USDC) - so that's nice.
The Competition: Operating a crypto exchange in the U.S. is pretty dicey and it has allowed foreign competitors like FTX to gain some ground. Coinbase marketshare has dropped to 24%, down from 31%, and FTX has pushed up to 22% from 18%. More sophisticated (typically institutional) traders are the big driver there and tides could shift with this BlackRock partnership, but that remains to be seen.
The Regulations: With so many big blunders in crypto recently (Celsius, Voyager, etc.) people are looking for regulators to step up and outline some rules. Back in May, Coinbase received a "voluntary request for information" and we're still not sure if that will lead to a formal investigation. In July, Coinbase even formally submitted a "Petition for Rulemaking – Digital Asset Securities Regulation" to the SEC. Up to this point the SEC has operated under a "regulation by enforcement" strategy that basically means "we'll make it up as we go" and it leaves a big blind-spot for exchanges trying to navigate growth.
My Semi-Informed Opinion: Coinbase has enough cash on hand to weather the "crypto winter" and to fend off competitors. They're a household name and for the uninitiated-crypto-population it's the closest thing to a trusted brand out there. Regulation is the big unknown. If Coinbase can make the right moves with regulators they could solidify themselves. If they get slapped with the wrong rulings it could be disastrous.
Reading the tea leaves of this BlackRock partnership, I think it bodes well for Coinbase from a regulatory perspective. Larry Fink and his $8T of assets under management (yes - trillion, with a "T") are no strangers to navigating the regulation game and bring significant relationship firepower to the Coinbase situation. If I'm Larry, I wouldn't get in bed with Coinbase just to watch them get sidelined by the SEC. We will see how it plays out, but BlackRock could prove a kingmaker.