Key Takeaways:
- Coinbase stock is vulnerable to lowering crypto transaction volume.
- The exchange’s revenue could drop due to the USDC-based interest income decline.
- Ether withdrawals continue after the Shanghai fork.
- Coinbase’s troubles with the SEC might continue.
YEREVAN (CoinChapter.com) — Coinbase stock COIN had a rough start to the year but remains up 78% year-to-date (YTD) thanks to renewed interest in cryptocurrencies amid the banking crisis.
As of May 30, the stock was changing hands for about $57 but has failed to move past $62, a psychological resistance level, for almost a month.
Nonetheless, COIN may pare some of its yearly gains in Q2 and Q3 owing to a mix of unsupportive fundamental indicators.
#1 Coinbase Transaction Revenue Risks QoQ Decline
Coinbase has two main revenue streams: transactions on the platform and revenue from subscriptions and services, with the latter making more income.
At just under $241 million in quarterly revenue, a third of Coinbase’s total Q1 revenue came from interest income. At $74 million, blockchain rewards have also been a significant sequential revenue growth driver quarter over quarter.
However, comparing April and likely May results does not project bullish confidence. For example, Coinbase CFO Alesia Haas mentioned $110 million in transaction revenue in April. But according to estimations, May might bring the lowest transaction volumes on the crypto market since October 2020.
If one averages April and May to project June figures, Coinbase’s transaction revenue for the second quarter is pacing just over $263 million.
#2 USDC Redemptions
Coinbase’s subscription and services revenue is further categorized into the following streams: blockchain rewards, custodial fee revenue, interest income, and others. Much of the interest income stream comes from its revenue-sharing agreement with USDC issuer Circle.
And while a third of Coinbase’s revenue came from interest income, the stream might be in trouble due to USDC’s precarious position and recent de-pegging incident.
Moreover, Circle’s treasury holdings mature at the end of May. To what degree USDC is monetized going forward isn’t clear as the US debt ceiling crisis continues.
#3 ETH Staking Outflow
According to Dune analytics, Coibase has suffered the largest Ether outflow behind the Kraken exchange as Ethereum launched its Shanghai fork.
Financial analyst Mike Fay said the “reduction in aggregate ETH staking may be partially offset by the US dollar-denominated increase in the price of ETH over the last several weeks.”
#4 The SEC Spoiler
Coinbase got a Wells notice from the Securities and Exchange Commission (SEC) in late March. After a cursory investigation, the regulator took issue with the staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
In short, a Wells notice is how the SEC warns a company that the latter is under recommendation for enforcement action after possible violations of securities laws. It is not a formal charge or lawsuit but can lead to one.
Meanwhile, the exchange has repeatedly expressed its readiness to work with the SEC and declare all the necessary information.
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Coinbase chief executive Brian Armstrong asserted that digital assets listed on the exchange went through a “rigorous” review and added that “the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”
noted Armstrong in a recent tweet.“Our S1 clearly explained our asset listing process and included 57 references to staking. Coinbase runs a rigorous asset review process and has rejected more than 90% of assets that have applied to be listed on the platform.”
A Wells notice does not equal a lawsuit, and Coinbase has support from the Chamber of Commerce. However, if a prosecution follows, Coinbase stock might tumble.
