Crypto Update-Coinbase earnings and the crypto dip

Analytics, 04 November 2022

Crypto Update-Coinbase earnings and the crypto dip

The crypto market has not been spared in the global economic turmoil that has been witnessed over the last year. Cryptocurrencies have plummeted spectacularly over the past few months, moving from all-time highs to mind-boggling lows. Bitcoin, which once traded for almost $US69,000 per coin dropped by 30% in June this year, and was trading below the psychological floor of $US20,000.

This dreary performance has greatly affected companies in the crypto space. The biggest crypto exchange, Coinbase, has been one such company. While the company reported user numbers that were better than analysts’ estimates, Coinbase missed third-quarter revenue estimates and announced a wider-than-expected loss. Coinbase also announced a more than 50% drop in revenue from a year earlier.

In this article, we analyze the current situation affecting the crypto market, a brief analysis of Coinbase’s earnings, and whether or not you should buy into the current crypto dip.

The crypto dip

Cryptocurrencies have plummeted spectacularly over the past few months, moving from all-time highs to mind-boggling lows. Bitcoin, which once traded for almost $US69,000 per coin dropped by 30% in June this year, and was trading below the psychological floor of $US20,000. Meanwhile, ETH saw similar losses to Bitcoin in recent months, down to around $US1100, while Cardano (ADA) suffered even worse, falling to $US0.46.

Since then, Bitcoin has been trading at that level, with the digital asset currently trading at $20,779.42. This was part of a broader crypto-crash that saw other cryptocurrencies also perform dismally, driving the market capitalization of all crypto assets from a combined $US3 trillion to around $US1 trillion.

The monumental drop in the crypto markets has widely affected companies in the crypto space, with crypto lenders such as Celsius Network, Babel, and Vauld, responding by freezing withdrawals, while other exchanges, such as Coinbase, laid off staff. The losses have also prompted the Australian corporate regulator, the Australian Securities and Investments Commission (ASIC) as well as the consumer advocacy group, CHOICE, to remind people of the highly volatile and risky nature of crypto.

Most experts believe the crypto dip is a result of the stress that is affecting the broader global economy, as central banks hike rates to curb inflation, investors begin dumping volatile assets, and cryptocurrencies have been highly affected by this dumping.

Coinbase earnings

On Thursday, November 3rd , 2022, Coinbase released third-quarter earnings after the bell. While the company reported user numbers that were better than analysts’ estimates, Coinbase missed third-quarter revenue estimates and announced a wider-than-expected loss.

In terms of revenue, the company announced a more than 50% drop from a year earlier at $590 million, missing Wall Street estimates of $654 million. The company’s financials turned south, resulting in a loss of $545 million after Coinbase generated a profit of over $400 million a year earlier.

October trading volume was $47 billion, and monthly users through October were roughly in-line with the third-quarter results, according to the filing. The company said it had 8.5 million monthly transacting users (MTUs) during the third quarter, down from 9 million in the prior period and 9.2 million in the first quarter. Coinbase said that in the fourth quarter, they expect lower trading volume and a similar number of MTUs compared to their Q3 results. For the full year, Coinbase said its monthly user number would be “slightly below” 9 million. The company said it’s “cautiously optimistic” it will operate within the $500 million adjusted “loss guardrail” that it set for the year.

Another interesting result posted was in individual cryptocurrencies’ performance, with Ethereum accounting for 33% of trading volume in the quarter, up from 22% in the prior period, and 31% came from bitcoin. However, only 24% of transaction revenue came from Ethereum, while bitcoin accounted for 31%, even with its volume. The strength of the Ethereum altcoin was inspired by a years-in-the-making upgrade known as the merge, which was designed to cut the cryptocurrency’s energy consumption by more than 99%.

This continued decline in the value of cryptocurrencies and losses piling up for the crypto exchange has led the company to a reversal of expansion activities that were set off by the company making its debut in the stock market. Last year, Coinbase staffed up to meet surging demand for crypto trading tools and enthusiasm around emerging coins. But momentum completely reversed in 2022, forcing the company to slash headcount. In June, Coinbase said it was eliminating 18% of full-time jobs, translating into more than 1,000 cuts.

Should you buy into the crypto dip?

A common phrase in financial markets, “buy the dip”, has been floating around the crypto space. It is based on an assumption price drops are temporary aberrations that correct themselves over time. Dip-buyers hope to exploit dips by buying at a relative discount and reaping the rewards when prices rise again.

Crypto markets are volatile, so buying cryptocurrencies at any price—let alone a dip that might become a long-term trend—is risky. While prices could return to previous levels, they could also fall even further, leaving your investment underwater.

If the past is prologue, then the current dip (or crash, depending on your perspective) could bounce back as it did last year, when prices fell to similar levels before returning to pre-dip levels and even peaking in the autumn. But of course, they might not.

Another factor to be considered is the global economic situation which has also affected the crypto market. Analysts expect the broader gloomy economic situation to persevere throughout the next two years, and the possibility of the crypto market tracking the global economy lower remains a risk for crypto traders.

It is therefore advisable for investors committed to ‘buying the dip’ to decide on a set amount of money they’re comfortable with using to buy BTC or ETH each month and not to worry too much about what happens to prices over the next two years.

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