(Bloomberg) -- Despite expectations for a doubling in revenue and a jump in profit, Coinbase Global Inc. is at risk of falling victim to a drop in volatility when it releases second-quarter results.
The unpredictable nature of token price swings have been one of the bigger challenges for the largest US cryptocurrency exchange since it was first listed as a public company in April 2021. Coinbase’s trading volume and revenue are forecast by analysts to drop from the first quarter, and the exchange appears to have lost market share.
“I think people would pay some attention to the sequential decline, and pay less attention to year-over-year improvement,” said Owen Lau, an analyst at Oppenheimer & Co. Inc., who has an “outperform” rating on Coinbase’s shares.
Crypto exchanges such as Brian Armstrong-led Coinbase thrive in bull markets, and while Bitcoin reached its all-time high in March, the largest cryptocurrency’s price slipped and slid into a narrow trading range in the second quarter. That pushed many retail traders to the sidelines, resulting in a nearly 30% sequential drop in spot trading volume on the exchange in the quarter, according to researcher CCData. Results will be released after the end of regular trading Thursday.
The 30-day average volatility for digital assets has been about 52% so far this year, according to researcher CCData. That’s down from 79% during the last bull market run in 2021.
Shares of Coinbase are up around 30% so far this year, though that’s less than the roughly 50% increase posted by market bellwether Bitcoin during the same period. That’s on top of an almost fivefold increase in the share price last year, which followed an 85% plunge in 2022 as the crypto world was hit by scandals and bankruptcies.
Overseas exchanges such as Bybit increased token listings during the most recent rally, eroding Coinbase’s share in the spot market to 4.5% in the second quarter, from 5.4% in the first, according to CCData. In June, Robinhood Markets Inc. bought crypto exchange Bitstamp, signaling an expansion of its ambitions in Europe and in serving institutional clients — and rising competition for Coinbase.
For the second quarter, Coinbase is expected to report $1.39 billion in revenue — nearly double last year’s amount. It’s expected to earn 84 cents a share, according to analysts surveyed by Bloomberg. Coinbase had a loss in the same period a year earlier.
Adding to potential investor confusion: In the first quarter, Coinbase began to mark its digital assets to market after adopting an accounting rule change. While that benefited the company in that period, an expected decline in the prices of tokens is expected to weigh on second-quarter results.
The third quarter is shaping up to be even more muted than the second, with Coinbase’s revenue expected to dip still more sequentially amid a more tradition downturn in trading during the summer months, according to data compiled by Bloomberg.
“The near-term outlook has become worse, which is why we lowered our estimates for Q2 and Q3, because of muted retail activity recently,” said John Todaro, an analyst at Needham & Co. “We believe many retail traders are underwater on positions they took in Q1 and are unlikely to put more dollars into the ecosystem until you get higher prices — maybe even Bitcoin above $90,000,” or more than 20% over the all-time high reached in March.
Still, Coinbase advocates remain optimistic, especially if former President Donald Trump is elected and ushers in more favorable crypto regulation as he promised supporters at a Bitcoin conference in Nashville this past weekend.
“Bitcoin is going to hit an all-time high after the election,” said Matthew Sigel, head of digital asset research at VanEck, a Coinbase investor. “The risk-reward for the stock has improved over the last few weeks given the political changes. Likelihood of Donald Trump winning and some evidence that Vice President Harris is at least rethinking the administration’s crypto strategy.”
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