At crypto exchange Coinbase Global, bitcoin prices and trading volumes no longer move in lockstep.
The digital currency is up 63 per cent this year, compared to the S&P 500’s 12 per cent gain. Shares in Coinbase have done even better, advancing more than 90 per cent. Having traded on just 1.5 times revenue in January, the lossmaking company is now on a multiple of 5.5 times. Bigger and more profitable exchange operators Cboe and the London Stock Exchange, are on 3.5 times and six times respectively by comparison.
But investors are getting ahead of themselves. Waning retail interest in trading the asset and the prospect of heavier regulation mean Coinbase is poised for difficulty ahead.
Despite the bounce in bitcoin prices this year, trading activity on Coinbase’s platform remains in the doldrums. The number of monthly transacting users (MTU) stood at 8.4mn at the end of the first quarter, compared to 9.2mn a year ago. Trading volume slid by more than 50 per cent over the period, while total transaction revenue was 63 per cent lower.
Even when compared to the fourth quarter, both trading volume and MTU numbers were little changed.
That is bad news for the exchange. Retail trading accounts for nearly 95 per cent of Coinbase’s transaction revenue and 71 per cent of total group revenue last year. In the first quarter, the slide in net revenue was mitigated by higher interest rates, which boosted interest income. These surged to $240.8mn from $10.5mn a year ago. But the gains are not sustainable. The Federal Reserve is expected to pause its interest rate boosting cycle this summer, though it may restart again. On top of this, Coinbase is the focus of a Securities and Exchange Commission investigation into possible securities laws violation.
Summer may be just around the corner, but investors in Coinbase should prepare for a long crypto winter ahead.