Analysts are putting their stakes in a robust earnings report for the second quarter report of Coinbase(COIN), going against the grain of the FactSet consensus expectation, which projected a decrease in the company’s revenues. The suggestion of the prediction’s over-performance leans on the seemingly undeterred retail trading activity on the exchange despite apparent headwinds.
It’s expected the exchange’s revenues will fall to $629 million, down from the previous quarter’s $773 million, largely due to an anticipated slowdown in trading volume. The volume for the period ending June 30 is believed to have dipped to $114 billion from the first quarter’s $145 billion. Moreover, earnings per share are projected to post a loss of $0.76, a deterioration from the $0.34 loss in Q1.
One noteworthy propulsion behind Coinbase’s year-to-date stock performance of a 177% surge is the ruling from the U.S. District Court of the Southern District of New York. The judge’s decision claimed the sale of Ripple’s XRP tokens on exchanges did not constitute investment contracts, underpinning Coinbase’s argument that many tokens it sells are not securities. Moreover, the swell of applications from financial institutions for spot bitcoin exchange-traded funds (ETF) – an exposure which could vastly widen the demand for bitcoin – is another wind in Coinbase’s sails.
Despite this seemingly bright outlook, scepticism lingers. Berenberg’s analyst Mark Palmer cautioned that a potential reversal of the court ruling and a shift toward the viewpoint that there should be no distinction between institutional sales and retail investor sales on crypto exchanges could capsize the positive wave. He also pointed to the potential threat to Coinbase’s USDC stablecoin income, which in Q1 accounted for 27% of its net revenue. With its market cap continually shrinking alongside regulatory apprehension from the U.S. Federal Reserve, the steady income stream could be disrupted.
Furthermore, the shadow of the SEC’s lawsuit against Coinbase and persistently tepid trading volumes in July could pose a sustained risk to the company’s buoyancy. The overhang from the lawsuit and its potential consequences could instigate lasting frailty in trading volumes and the amount of assets on the platform. The looming release of Q2 reports will undoubtedly bring sharper focus onto these challenges and their impact on Coinbase’s fiscal health. The platform’s future hangs between the scales of resilient retail trade performance and regulatory riptides.
Source: Coindesk
