Crypto Markets Under Macroeconomic Shock: Coinbase Q2 Earnings Report

Ultimately, these developments have led to increased volatility in crypto asset markets and triggered exchange liquidations at important price levels.

Source: Coin Metrics Market Data

Coinbase 2024 Q2 2024 Earnings Highlights Coinbase, one of the most prominent U.S. crypto businesses and the largest U.S. crypto exchange, reported its Q2 2024 earnings last week. Total revenue was $1.4 billion, down 11% sequentially but up 108% year-over-year, with transaction volume revenue, the core engine of its business, down 27% sequentially to $781 million. Nonetheless, Coinbase made exciting progress in Q2, adding new product categories and reducing friction from on-chain interactions. This included the launch of Smart Wallets, lowering fees associated with its Layer 2 Base, and integrating Base with Stripe to expand stablecoin adoption and global payments infrastructure. Significant progress was also made toward greater regulatory clarity with the launch of a spot Ethereum ETF in the U.S. and the implementation of MiCA regulations in Europe.

Transaction income

Source: Coin Metrics Market Data

Trading activity across the market declined from its first quarter peak, driven by a sharp rise in crypto asset prices, which drove volatility and trading volumes higher. In the second quarter, Coinbase's spot trading volume stabilized at a 7-day average of around $2 billion, with 60% of spot trading volume coming from BTC, ETH, and USDT, and 40% from other crypto assets. This reflects the market's preference for mature, high-cap assets in the second quarter, likely due to the larger institutional trading volume ($189 billion) relative to retail trading volume ($37 billion) at this stage of the market cycle.

Subscription and service revenue

However, this did not prevent its business from growing strongly this quarter. Coinbase's recent profit history shows that revenue from non-trading activities ("subscription and service revenue") is increasingly affecting Coinbase's revenue structure and strategic direction. This part of revenue, which includes revenue generated by Circle's USDC protocol, blockchain rewards generated by PoS staking, and custody fees for Bitcoin spot ETFs, increased by 17% month-on-month to US$599 million.

Source: Coinbase Quarterly Earnings

The biggest increase came from USDC held on the platform, which stemmed from their revenue-sharing agreement with Circle. Coinbase and Circle share equally in the interest income generated by the reserves backing USDC, such as U.S. Treasuries and other dollar-equivalent assets, which benefit from the current high interest rate environment. Despite its growing prominence, the stablecoin revenue portion of Coinbase's business could be adversely impacted by a decision by the Federal Reserve to cut interest rates in the near future.

What variables are correlated with the $COIN stock price?

As Coinbase expands into numerous verticals outside of its core trading business, it is likely to be impacted by the dynamic, interconnected nature of the crypto ecosystem, as well as broader market shifts. Understanding the relationship between various metrics and asset returns and the returns of Coinbase stock (COIN) can provide valuable insights into its underlying drivers and risk factors.

Source: Coin Metrics Reference Rate, Network Data Pro and Google Finance

The above chart shows various indicators and asset returns vs. COIN Pearson correlation matrix of percentage changes in returns, illustrating the strength and direction of the linear relationship between these variables. The percentage change in the Nasdaq Composite Index exhibits the highest positive correlation with COIN returns (0.58). This suggests that COIN returns are significantly influenced by broader market trends and investor sentiment in traditional financial markets, especially technology stocks. Correlations with BTC returns (0.49) and ETH returns (0.44) are also relatively high, indicating that the growth of the largest crypto assets affects COIN returns. Interestingly, metrics related to Coinbase's business, such as spot trading volume, stablecoin supply, and staked ETH units, show negligible correlation. However, looking at the 90-day rolling correlation provides a better understanding of how these variables have changed over time.

$COIN 与收入领域之间的相关性

Source: Coin Metrics Network Data Pro, Market Data Feed

90% of COIN revenue and key indicators are between The daily rolling correlations show significant changes, reflecting the dynamic nature of the cryptocurrency market and indicators related to Coinbase's business. In the early stages of Coinbase as a public company, COIN revenue showed the highest positive and negative correlations with the exchange's spot trading volume (+0.3 to -0.4), indicating its initial importance to investors. However, over time, its relationship with stablecoin supply and changes in ETH staked volume has also become more prominent, although the relationship is still weak, indicating that investors' attention is gradually shifting to new sources of revenue.

$COIN 与市场回报之间的相关性

Source: Coin Metrics Reference Rate, Google Finance

As a Nasdaq-listed company, Coinbase Provides a unique portfolio for both the cryptocurrency and traditional financial markets. The rolling correlation with the Nasdaq Composite Index returns has been strong and positive until 2023, when the cryptocurrency market declined, amplifying the impact of traditional markets. While the returns of BTC, ETH, and SOL also show moderate positive correlations due to the inter-correlated nature of cryptocurrencies, these relationships may diverge, especially in the event of changes in macroeconomic conditions, periods of market volatility, or asset-specific catalysts.

Conclusion

Markets have been volatile recently, and risk aversion may continue due to a combination of macroeconomic and cryptocurrency-specific developments, testing participants' long-term conviction. Despite these challenges, on-chain infrastructure and applications have shown resilience. In the short to medium term, the relief of excess supply from the repayment of Mt. Gox creditors, the final completion of the Jump Crypto liquidation, and the relief of Grayscale's GBTC and ETHE outflows may bring opportunities for retail and institutional investors. Looking ahead, positive ETF flows will be critical as they could signal sustained demand for crypto assets, catalyzing a return to growth in the crypto market, potentially benefiting companies like Coinbase, and driving broader adoption of the on-chain ecosystem.