By Ketki Saxena
Investing.com -- Crypto exchange Coinbase (NASDAQ:COIN) is expected to report better-than-expected earnings for the second quarter of 2023 after the market closes on Thursday, August 3, 2023. Analysts predict strong results, driven by resilient retail trading activity. However, potential threats include regulatory risks and a decrease in trading volumes.
FactSet consensus estimates suggest that Coinbase's revenue will decrease from the previous quarter, falling to $629 million from $773 million. Trading volume for the period ending June 30 is expected to have slowed down to $114 billion from Q1's $145 billion. Losses per share are projected at $0.76, compared to a loss of $0.34 in the first quarter.
Despite these predictions, analysts at British banking giant Barclays (LON:BARC) remain optimistic. In a report published on Tuesday, they stated: "We expect adjusted EBITDA to come in well ahead of consensus." They attributed this optimism to the resilience of retail trading activity on the exchange, although they noted that longer-term upside could compress.
Coinbase shares have risen by 177% year-to-date, boosted by two significant factors according to Barclays. The first is a ruling by a U.S. District Court judge that the sale of Ripple's XRP tokens on exchanges did not constitute investment contracts, reinforcing Coinbase's stance that many of the tokens it sells are not securities. The second factor is numerous applications from financial institutions for spot bitcoin exchange-traded funds (ETFs), which could significantly increase bitcoin's availability and demand.
However, Berenberg analyst Mark Palmer warned in a note on Tuesday that another judge from the same district rejected the ruling, arguing that there should be no distinction between institutional sales and sales to retail investors on crypto exchanges. He also cautioned that the company's situation might come into sharper focus with the release of its Q2 report.
Palmer also highlighted risks associated with the USDC stablecoin, which generated $199 million or 27% of Coinbase's net revenue from interest income in Q1. As the market cap of USDC continues its steady decline and concerns raised by the U.S. Federal Reserve and other regulators regarding stablecoins persist, Coinbase's revenue derived from it could face further threats.
Trading volumes remained low in July according to Barclays, citing data from The Block which showed a month-over-month decrease of 5%. Palmer had anticipated weak Q2 trading volumes even before the SEC filed a lawsuit against Coinbase on June 6. He believes this could result in persistent weakness in trading volumes and a reduction in assets on its platform.