Coinbase stock rises as Q1 results beat, but company warns bank disruptions are rattling crypto

Analysts polled by FactSet expected Coinbase COIN, +1.51% to report a per-share loss of $1.45, on revenue of $655 million. They expected trading volume of $147.7 billion.

“The crypto industry continues to be volatile, as evidenced most recently by the disruptions in the banking sector and ongoing regulatory uncertainty,” executives said in the company’s letter to shareholders. “While we can’t predict the outcome of these events, we continue to focus on our cost-reduction efforts,” while trying to boost adjusted profits.

Shares rose 6.6% in after-hours trade. The price of bitcoin BTCUSD, +0.02% rose 1.5% to $26,826 on Thursday.

For the second quarter, Coinbase executives said they expected subscription and services revenue of around $300 million.

“We anticipate a sequential decline in subscription and services revenue, largely driven by the decline in USDC market cap,” the company said, referring to USD Coin, a so-called stablecoin whose value is pegged to the U.S. dollar. “Average USDC market cap in April was $31.7 billion, 23% lower than the Q1 average of $41.3 billion.”

Ahead of Coinbase’s earnings, Mizuho analysts said to “brace for impact,” as recession fears and the collapse of FTX over the past year prompted more crypto traders to race to the sidelines.

“Despite COIN’s recent efforts to boost sentiment (e.g. recent launch of an international exchange for non-U.S. users), fundamentals remain weak,” they said in a note on Wednesday. “Average daily trading volumes are $1.16bn in 2Q-to-date, -27% below both March and overall 1Q levels.”

Bitcoin has rebounded since November, but is still well below the highs it reached in 2021, when it crossed $60,000 amid greater appetite for risk during the economy’s rebound. That appetite shrank last year as traders grew more cautious on concerns of a recession, posing greater risk to trading volumes and revenues for crypto exchanges.

The crypto industry is also trying to rebuild its reputation following the collapse of FTX and other fissures in the cryptocurrency infrastructure that have raised deeper questions about the security of traders’ funds. FTX’s founder, Sam Bankman-Fried, has been charged with bribery and fraud.

The Securities and Exchange Commission has stepped up efforts to clamp down on or otherwise scrutinize the crypto sector — including at Coinbase, which has occasionally pushed back against the agency.

Coinbase in March disclosed that the SEC had made a “‘preliminary determination’ to recommend that the SEC file an enforcement action against the company alleging violations of the federal securities laws.” The company — which said the notification was related to an “undefined” segment of the digital assets on its platform — has pressed the SEC to carve out clearer rules for the crypto industry, including via a federal court action last month. An investor has also accused Coinbase Chief Executive Brian Armstrong, board member Marc Andreessen and others of using inside information to offload stock to dodge losses, according to Bloomberg.

Last month, the SEC charged crypto trading firm Bittrex and its former chief executive with running an unregistered exchange. Earlier this year, it accused Genesis and Gemini of making unregistered sales of securities to investors through a crypto lending program.

Shares of Coinbase have fallen 62.3% over the past 12 months. By comparison, the S&P 500 Index SPX, -0.72% is down 5.6% over that period.