Cryptocurrency exchange Coinbase (COIN) forecast lower trading volume and active users for the third quarter, following a drop in crypto prices and trading action, even as second-quarter results beat expectations.
Coinbase stock rose modestly overnight. The company, the largest cryptocurrency exchange in the U.S., said the prices of digital assets and volatility had “declined significantly relative to Q2 levels.”
“As a result, we believe retail MTUs and total Trading Volume will be lower in Q3 as compared to Q2,” Coinbase said, referring to monthly transacting users.
The company reported the results as cryptocurrency prices weave through steep peaks and valleys, with investors weighing the prospect of new regulations and industry crackdowns against signs of mainstream support. The just-passed Senate infrastructure deal includes new IRS reporting requirements for cryptocurrency transactions.
Coinbase earned $6.42 per share, far above FactSet’s estimates for $2.32 per share. Revenue came in at $2.03 billion. That was above forecasts for $1.821 billion.
Retail monthly transacting users grew to 8.8 million during the quarter, a 44% gain from the prior quarter. The exchange had 68 million total verified users on its platform as of the end of the second quarter.
Trading volume rose 40% from the prior quarter. The total amount of assets on the platform, however, fell over that time.
Coinbase, in its letter to shareholders, noted the roller-coaster swings in the cryptocurrency market during the quarter. The price of Bitcoin reached past $64,000 in April, before falling sharply.
“As volatility and crypto asset prices are highly correlated with trading revenue, the crypto market environment heavily influenced our Q2 financial results,” the company said.
The company said that in July, retail monthly transacting users were 6.3 million. Trading volume stood at $57 billion. So far this month, those levels have improved, but were still lower than earlier in the year.
Coinbase stock rose 1.8% after hours in the stock market today. Shares have largely fallen since their debut in April, when the price of Bitcoin was near record highs. COIN stock surged 22% over the prior three sessions, rebounding from its 50-day line.
Coinbase, like other Bitcoin stocks, tends to rise and fall with the underlying cryptocurrency.
The price of Bitcoin was little changed vs. 24 hours earlier to $45,700. Bitcoin topped $46,400 on Monday, the highest since mid-May. That comes after the Bitcoin price tumbled below $30,000 in late July.
The Grayscale Bitcoin Trust (GBTC) was down 2% during the regular session.
Coinbase’s fortunes are largely tied to the public’s interest in cryptocurrencies, drawing revenue from transaction fees earned from cryptocurrency trades on its platform.
The company, which competes with other exchanges, in June said it would allow some trading of the meme-based cryptocurrency Dogecoin. Coinbase’s first-quarter results, reported in May, came up shy of estimates.
In a list of questions from shareholders for the company ahead of its results, the most shared question was about whether Coinbase has “any plans to add NFTs?” or non-fungible tokens. Those tokens use crypto technology to render things like art as verifiable pieces of property that can be sold as digital goods.
Another widely-shared question sought more information on how Coinbase’s Prime service, geared toward more sophisticated and institutional investors, was different from other service providers.
Bitcoin stocks also face broader challenges. Cryptocurrency industry groups expressed dismay at the Senate’s decision not to rework an item in the $1 trillion bipartisan infrastructure bill that was intended to strengthen transaction-data reporting requirements and tax enforcement on the industry. The tighter rules would raise an estimated $28 billion over the next decade to fund the bill.
The Senate passed the bill on Tuesday. The bill — and crypto lobbyists’ attention — now go to the House.
At issue has been how the bill defines the cryptocurrency-transaction “brokers” that would be subject to the reporting requirements. The crypto industry worried that definition in the bill was too broad, and would end up applying to people like miners and others that don’t directly handle crypto transactions and are unable to collect user information.
“As written, the infrastructure bill contains harmful IRS reporting requirements that many in the crypto ecosystem lack the capabilities to comply with,” Kristin Smith, executive director of the Blockchain Association, an industry advocacy group, said in a statement Monday. “As a result, many crypto players will be forced to move overseas, leaving future jobs and economic growth on the table.”
Elsewhere, the price of Bitcoin and Bitcoin stocks have been under pressure amid a crackdown in China on cryptocurrency-related activity.
Follow Bill Peters on Twitter at @IBD_BPeters.
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