Q2 Crypto Earnings Are BAD!! Here’s What They Mean!!

We can all see it bear market prices Across the board but how bad are things Really are we in for a long hard crypto Winter or is there some any cause for Optimism Well that’s exactly what I’m going to Analyze in this video I’ll be taking a Deep dive into an earnings report that Could give us the clearest indication Yet of where we could be heading so Don’t go anywhere [Music] Thank you okay we’ve all got them the Bear Market blues for some of us it Might seem there’s little left to lose These times we’re living in are chilly And strange but though the markets are Crazy some things never change that’s Right despite everything declining in Price I’m still not qualified to give Financial advice this video is meant to Educate and entertain I’m afraid I can’t Tell you how to make it rain contact a Financial advisor if you’re feeling the Strain If today is the day on which we first Meet my name is guy and kryptos my beat On this channel crypto is what’s on the Menu so if that’s what you’re after this Is the venue If you want the very best crypto content Feeding your mind tap subscribe and the Bell icon if you’d be so kind Okay that’s enough rhyming let’s keep it

Short and have a butcher’s at this Quarterly earnings report The earnings report I’m going to be Digging into comes from none other than Coinbase now we all know coinbase one of The biggest and most well-known Cryptocurrency exchanges out there It’s also the only one that is fully Listed on the New York Stock Exchange Now the reason why this report is so Important is not because of what it Means for coinbase but because of its Implications for the entire crypto Market That’s because you can bet that the Coinbase numbers for q1 are broadly Similar to those of all the other Global Exchanges this means that we can extract The micro coinbase’s performance and Extrapolate it to the macro so that’s Why it’s so important to dive in to this Report okay let’s start with some high Level stats and analyst estimates shall We Well the numbers came in way below Expectations consensus estimates for q1 Revenue were 1.5 billion dollars and They came in at 1.2 billion dollars I’ll Also point out that this is a 35 fall From the q1 revenue last year and a 53 Fall from Q4 of last year Analysts also expected there to be a Modest profit of 43 million dollars for The quarter however coinbase also

Surprised to the downside on that as it Reported a 430 million dollar loss this Is no doubt thanks to a fall in those Trading volumes which are down by 44 From the last quarter Now trading volumes fail because fewer People were using the exchange monthly Transaction users or mtus fell to 9.2 Million down from 11.4 million in the Fourth quarter of 2021. it’s not just on The revenue side though you also have to Consider that coinbase was rapidly Increasing its costs Headcount Rose by 32 percent in just Three months this is helping to drive Operating expenses up which combined With those falling revenues helped to Drive profit down Of course coin stock did not react well To this the intraday fall in the price Was almost 13 the next day saw a fall of Over 26 percent and if we were to take a Look at it over the past six months it’s Down a full 87 percent Ouch Bear in mind that the price of Bitcoin Was only down 54 in the same period heck It’s even worse than Netflix’s epic Fall From Grace With The streaming giant Falling by 74 over the time frame So it’s quite clear that the market is Not all that convinced about coinbase But what did coinbase itself have to say In reply

Well in the earnings call after the Market closed coinbase Executives made It clear that they were focused on Long-term growth and not short-term Profitability They said that they would not be Considering any job cuts and according To the CFO Alicia Hass quote we can Choose profitability over investment in The business but we chose investment in The business CEO Brian Armstrong also tweeted a quote By Fred Wilson that said quote markets Are irrational in the short term but not Over the long term they sometimes offer Fire sale prices on the greatest Companies in the world Perhaps the market may have overreacted A bit when you consider that coinbase Has large reserves of cash and that has Posted profitable quarters in four of The last five However with a p e ratio of 3.5 times it Shows how little investors on the street View the long-term profitability Prospects of the exchange according to Goldman Sachs quote in the current macro Backdrop We Believe coin is unlikely to Return to recent levels of profitability In the near term absent a significant Increase in crypto prices or volatility Okay so that’s what the market thinks However coinbase wanted to highlight Some of the most important developments

At the company over the past quarter I Think it’s important to take a look at Some of these perhaps the glass is half Full In this section here coinbase states That the decline it saw in mtus was Expected in Q4 despite that though there Are a few things that it claims to be Optimistic about Firstly Brian and Co note that although The number of users trading on the Platform has been dropping the Percentage of these users who have Engaged with other products has been Increasing So basically people who are using Coinbase are using the platform for Purposes other than just Trading The biggest of these were of course Yield generation products or staking of Some kind What’s interesting to note here is that The report mentions cardano specifically When coinbase introduced cardano staking At the end of q1 there was intense Demand for it although it was not picked Up in the q1 numbers so perhaps Something to look forward to in Q2 The report also mentions the Super Bowl Ad in q1 that saw the coinbase brand Being exposed to millions of viewers now While this is great you still have to Wonder why with such ad spend numbers Were so soft but then of course it’s

About brand awareness I suppose What I’m most interested in though is This point over here as you can see Coinbase has increased the amount of Institutional clients it’s been Servicing in q1 while you do have some Crypto-specific institutional Partners You also have the likes of Invesco GSA Capital Lake Star Market Securities and Millennium global more trade fire Investors making their moves in the Crypto space On to this section over here and this is Where they talk about the additional Support they’ve added for both crypto And Fiat payment rails first on the Crypto side it’s quite clear that Coinbase is Keen to list tokens in fact It’s been listing just about anything With a market pulse now while this is Not really a positive from a brand Perspective it does help with trading Fees I just find it annoying that it Doesn’t list some really well Established projects with strong Potential perhaps because they’re not Backed by coinbase Ventures It’s not all bad though coinbase did Expand trading pairs for usdc which Allows people to trade a stable coin That actually acts like a stable coin Too soon Too soon Beyond this though coinbase pay is

Something that could help increase the Adoption of crypto That’s because it’ll allow web 3 dapps And other wallets to connect to Coinbase’s Fiat rails more Fiat rails Into web 3 more adoption They’ve also made it easier on the leg Out of crypto to Fiat with their payouts To Visa debit cards via checkout.com The final thing that coinbase goes over In this section is where it talks about All the Innovative products that it’s Been launching This was actually pretty interesting as There were some products here that I Hadn’t known a thing about For example coinbase now has a tax Center which allows its U.S users to Easily track their portfolios and file Their taxes did any of you use this for The most recent filing coinbase will be Sharing your info with the IRS anyway so You know you may as well Something else that I didn’t know is That coinbase acquired a regulated Crypto derivatives exchange called fairx This means that coinbase could soon be Offering its users derivatives in a Regulated wrapper this could also allow It to more effectively compete with the Likes of FTX binance at Hal Here we also have a mention of the Launch of the coinbase nft marketplace Which I think must have been left in by

Mistake before the report went to press That’s because if you’ve been following The rollout of this Marketplace you’ll Have noticed that it got an even Chillier reception than Gary Gensler at The coinbase Christmas party Tumbleweed Central that’s not all that surprising Given that it launched when the nft hype Was near Rock Bottom That aside though some product Enhancements I think are quite positive Included the improvements made to the Coinbase wallet browser extension It now supports Solana as well as The Ledger Hardware wallet you’re also able To receive funds into your wallet not Only by using an ethereum name service Address but also your coinbase username Finally coinbase also integrated nft Support which of course appeals to all Those web3 digens looking to Marvel at Their jpegs this is beneficial as it Acts as a sort of on or off ramp from The Exchange into the web 3 space Okay so that’s some hopium from coinbase Or perhaps copium it really depends on What else is in the financials which Brings us on to the next section Firstly let’s take a look at these key Metrics over here as you can see these Are all driven by that fall in trading Volume what’s interesting to note here Though is the relative declines in Retail and institutional volumes while

Retail volume has fallen by 59 Institutional volume has fallen by about 37 so what this shows us is that retail Has been way less busy in the markets This quarter than they were last less so Than the institutions Something else worth noting is the fact That the institutional volume was more Concentrated in Bitcoin and ethereum Whereas retail had more of an appetite For other assets make of that what you Will This chart over here is also pretty Interesting it shows the trading volume On the exchange overlaid with the Volatility in the crypto Market Quite surprisingly more volatility means More volume as Traders are trying to Take advantage of the choppy market Conditions Then over here you have disclosure of The assets on the platform nothing Really groundbreaking here apart from The fact that coinbase holds over 11 of The entire crypto market cap in its Custody you better hope it has some Really impenetrable security This is perhaps also a good time to Mention that in separate filings Coinbase disclosed that quote in the Event of a bankruptcy the crypto assets We hold in custody on behalf of our Customers could be subject to bankruptcy Proceedings and such customers could be

Treated as our general unsecured Creditors what that basically means is That any cryptocurrency you hold at Coinbase isn’t legally viewed as your Assets but as assets that you have Loaned to coinbase so bear that in mind Anywho where was I ah yes the rest of The report On to the next page over here and we Have the revenue numbers now this was Perhaps one of the craziest stats for me As you can see retail trading makes up 95 of coinbase’s trading Revenue however If we go back to those trading volume Numbers you’ll see that retail makes up Only 23 of the volume So what that basically means is that Although a large degree of the volume Going through coinbase is institutional It makes most of its bread and butter Off of people like us Of course coinbase is not known for Being an exchange with the lowest retail Fees so this kind of makes sense Moreover you can bet that most of those Institutions are paying little if any Fees thanks to the flow that they bring To the platform indeed this is something Disclosed in the report quote our Institutional fee rate declined modestly In q1 compared to Q4 and was driven by a Change in the fee structure for market Makers which generates the vast majority Of our institutional volume

And given that retail volume was down so Much over the quarter those juicy retail Trading fees were down considerably from The year before That retail trading Revenue fell by About the same magnitude as the retail Trading volume which again makes sense The rest of these Services revenues over Here are of lesser significance as I Said the vast majority 87 percent of Coinbase’s Revenue came from Trading but It is worth noting that if coinbase can Increase these non-trading revenues then It would help it better weather the Chill of a crypto winter Subscription income could come in handy When trading volumes are tanking Moving on though I want to take a bit of A deeper look into the operating Expenses over here as it helps to see Exactly where coinbase is investing Overall operating expenses were up about Nine percent in q1 over Q4 and the Primary driver of this has been the Increase in headcount It’s also quite funny that inflation has Not had an impact on costs given that Coinbase’s main cost centers are people And Tech although one has to wonder if The astronomical pay that’s required in The crypto industry can be considered as A form of inflation but that’s neither Here nor there now coinbase has a total Of

4948 full-time employees which is a Massive increase from the quarter before 33 percent And in just the last 12 months it has Taken on 3200 net new employees talk about a Hiring spree This is a sign of cautious optimism for Me the rapid increase in hiring even During a time of slow market conditions Shows that the exchange is building for The long term Indeed this is not something unique to Coinbase there’s been a rapid expansion Of crypto hiring throughout the industry And Beyond Crypto companies here for the long term Are making investments in Talent Investments that pay off in time and are Not impacted by bear Market Blues And speaking of which if you are looking For a job in crypto I’m sure we can help You out more about that in the Description Anyways another cost that you may want To note is this one over here which Relates to other operating expenses of 259 million dollars this is up Considerably over the last quarter It mostly consists of a 229 million Dollar impairment charge essentially Quarterly losses on the crypto assets That are held on the balance sheet so This impairment charge is able to

Explain over 50 percent of the loss that Coinbase experienced for the first Quarter of this year What this shows is that if you want to Have long exposure to crypto on your Balance sheet on the way up you have to Risk that downside exposure on the way Down Allah microstrategy Now this impairment number is an Important one to remember and I will Come back to it in a bit let’s move on To the next page though as this is all About coinbase’s outlook for Q2 and the Rest of the year For Q2 it’s a rather downbeat forecast It shows coinbase expects falling mtus And crypto asset volatility which will Of course drive those trading volumes Down Lower trading volumes lower revenues Lower profit There’s also a full year outlook over Here they’re trying to give a Conservative guidance of potential Ebitda losses of 500 million dollars That’s based on the rather wide range of Estimates for the key metrics for the Remainder of 2022. for example they Expect monthly transacting users Throughout the year to average anywhere Between 5 and 15 million and although They do expect subscription and services Revenue to start picking up I think that It’s unlikely to pick up the slack from

The fall in trading revenues I’ll also Add that coinbase expects the Transaction Revenue per user this year To be as low as it was in 2019. what This means is even if coinbase does Increase the number of mtus this will Not necessarily translate into a Proportional increase in Revenue Essentially users trading on coinbase Are likely to trade less frequently as They did in 2021 which is again a Logical conclusion When it comes to the costs though Coinbase has stated that it’s sticking To its ambitious hiring plans and expect Tech development and GNA expenses to be Between 4.25 billion and 5.25 billion in 2022. So based on these numbers already One can see why an operating loss for 2022 is more than likely but there’s one More factor that we need to consider and That is potential impairment losses Recall that at the end of q1 Bitcoin was Sitting at 47k eth was sitting at 3.4 K And since that time prices have only Continued to slide which means that the Impairment charge is likely to have only Gotten worse In fact if we look at their Profitability and cash position over Here you’ll see that they held around 1 Billion dollars in a variety of crypto Assets at the end of the quarter if we Were to assume that this portfolio was

Reasonably Diversified then we can also Roughly assume that the fall in their Portfolio is similar in magnitude to That of the entire market cap The latter has fallen by 40 percent So one can therefore assume that the Value of coinbase’s entire crypto stack Has fallen by roughly 400 billion Dollars in only the first six weeks of Q2 certainly puts my recent losses into Perspective I can tell you Yes it’s technically possible that Coinbase could have hedged this with Derivatives however it didn’t use Substantial hedge positions in q1 so There’s no reason for it to have done so All of a sudden this quarter The tldr here is that even without Considering Falls in trading Revenue Coinbase could be facing a close to 400 Million dollar impairment charge on its Q2 numbers and we’re only halfway Through it If these markets continue their fall who Knows how its financials will look at The end of Q2 Now that’s most of the report that I Wanted to cover I know it sounds a bit Gloomy but that’s the unfortunate Reality we are in a bear market and Exchanges are unlikely to emerge without A few scars but they will emerge alive That’s because it appears from this Coinbase report that it is intensely

Focused on the long-term transformative Potential of crypto the final section of The report says as much it goes over Some of the key ways it has already made History this year from helping Ukraine Raise funds after the Russian invasion To the common sense regulations coming Out of U.S federal and state governments This is all at a time when only 20 of All Americans have used or traded crypto Only 20 percent If we rewind our clocks back to the late 1990s we saw similar levels of Internet Adoption in U.S households there was of Course Mass Euphoria around the Potential of the internet back then Which culminated in the.com boom and Bust many were calling it the end of the Industry of course they were saying Companies like Amazon and Google would Never recover sacrificial Lambs on the Altar of hubris However look where they are now look how Much the internet and these companies Have transformed our lives and look at How much freaking money they’re now Making Of course this doesn’t mean that Coinbase will be one of those companies But love it or hate it it’s one of those Companies leading the charge And there will be tough times this year Which means its shares could indeed fall Further

But as long as it keeps its long-term Focus front and center it can easily Weather the storm it’s done so before And emerged stronger therefore I think It’s justified in signing off this Report with a bit of wag me because we Are we are all going to make it And that’s it for my video today but I’m Really Keen to hear your thoughts did You think this was a Fair Video are There any of you who are coin Stockholders unburden yourselves below And while you’re tapping away at that Comment you absolutely have to check out My socials page this has the links to All the official places that you can Follow me off the tube and it includes My telegram Channel where I share market Analysis and Views Twitter where I share News and other tips Instagram and Tick Tock for behind the scenes views and Memes and of course my email newsletter Where I share a breakdown of my personal Portfolio as well as a breakdown of some Upcoming videos oh and by the way our Official giveaway of one whole Bitcoin Is still ongoing 10 lucky winners could Each get 0.1 BTC more about that as well As all the other resources in the Description below And finally if you found this video fine Then fire up the likes don’t forget to Subscribe to make sure you’re in line to Receive my latest crypto Vibes oh and

Hit that Bell as well we don’t want it To get lonely The Good Ship crypto sales on my friends The Caesar rough the bars are running a Little dry but somewhere Over the Horizon there are Karma Waters waiting Keep calm and hoddle on [Music] Thank you

Coinbase
OUR TAKE

Coinbase is a popular cryptocurrency exchange. It makes it easy to buy, sell, and exchange cryptocurrencies like Bitcoin. Coinbase also has a brokerage service that makes it easy to buy Bitcoin as easily as buying stocks through an online broker. However, Coinbase can be expensive due to the fees it charges and its poor customer service.

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