Coinbase: exchange does well despite the SEC

Yesterday there had been widespread fears about the release of quarterly report by Coinbase exchange. Indeed, there were fears that the crypto exchange had performed poorly in the second quarter of 2023, mainly due to problems with the SEC. 

The speculation circulating was that the outlook was gloomy, so much so that the markets had punished the stock in recent days. 

The decline of the Coinbase exchange because of the SEC 

After mid-July, share price of Coinbase had risen to over $110, but starting on 20 July it had begun a descent that brought it down to yesterday’s $88. 

Truth be told, even before the release of the quarterly data, it had recovered slightly, closing yesterday’s session at $90. All the concerns had probably already been priced in. 

Moreover, it should not be forgotten that in June it had even fallen as low as $45, although by the end of the month it had already begun to rise again. Before mid-July it had already risen to $84, and with the publication of the New York judge’s ruling in favor of XRP it had then jumped to $110 in a single day. 

Hence yesterday’s close is in line with the values before this latest flare-up, and even twice as high as the June lows. 

Clearly, some of the arguably excessive optimism that had spread in mid-July thanks to the pro-XRP ruling had simply dissipated in recent weeks. 

It is difficult to say that this recent decline was due only to gloomy expectations regarding the quarterly. 

The quarterly

Indeed, in the end, even such concerns turned out to be excessive. 

The data published by Coinbase regarding the company’s economic and financial performance in the second quarter of 2023 did not turn out to be as bad as many feared. 

For example, revenues fell to $708 million, or 8% less than the previous quarter’s $772 million and 12% less than the $808 million in last year’s second quarter. 

The markets’ expectations were definitely worse, so while it was not a good quarter it was still slightly better than the markets’ expectations. 

To be clear, the exchange still posted a net loss of a whopping $97 million, but with positive EBITDA of $194 million.

These are poor but not very bad figures, while the assumptions circulating yesterday suggested that they could have been. 

During the post-market, Coinbase’s stock price was quite volatile, but eventually settled at $89, which is in line with yesterday’s $90 closing. 

Indeed, as soon as the quarterly report was published, it had jumped to $101 within five minutes, but only to fall back to $87 in the next half hour. It later tried to get back above $90, but only to fall back below again. 

This dynamic makes it clear both that markets were expecting worse data and that the same data did not turn out well. 

The causes

One of the things that stands out most about that data is the 50% cut in recurring operating expenses. 

It is clear that during the last big bull run the exchange really grew a lot, and the company decided to structure itself more. With the bear-market this trend simply reversed, except that

cutting recurring operating expenses is much more difficult than increasing them, and it takes longer. 

Thus in part Coinbase’s poor 2023 financial results are still a consequence of the 2022 bear-market, particularly the slowness with which the company is reacting to the collapse of the crypto markets. 

Indeed, 2023 for the crypto markets was a good year, but not for Coinbase. Then again, financial markets are quick to react to change, whereas for such a structured company the reaction can only be slow. 

However, it should not be forgotten either that while in 2023 crypto market capitalization rose from $800 billion to nearly $1.2 trillion, by 2022 it had plummeted from $2.2 trillion to $800 billion. 

The future

Many expect a change in the trend for crypto exchanges as well in case a new big bull run is triggered. 

Indeed, crypto markets are so volatile that sooner or later a new bull run is expected to come, but in this case the key point will be the starting levels. 

Which is to say, it would be one thing for a bull run to start from a level of crypto market capitalization similar to the current one, quite another thing if it instead started from a level similar to the level at the beginning of the year or even lower. 

Typically, crypto markets follow Bitcoin’s four-year cycle, which leads one to speculate that after the halving of 2024 a new major bull run could sooner or later begin. What is unknown is whether before then, prices will remain stable, rise, or even fall. 

However, at least the great fear that the SEC was going to get in the way of crypto exchanges in the US as of today seems to have passed, not least because the days of FTX’s failure now seem quite distant. 

Indeed, if Republicans win in next year’s presidential election in the US, it is possible to imagine a new opening of the US to the crypto world.