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Coinbase shares knocked as user numbers and trading volume decline

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Coinbase shares dropped almost 15 per cent on Tuesday after the cryptocurrency exchange reported disappointing revenue for the third quarter and a shrinking number of active users, in a sign that feverish trading has calmed.

Revenues in the third quarter were $1.31bn, a more than 300 per cent rise on the same quarter last year, but well below analyst expectations of $1.58bn, according to S&P Capital IQ.

The results suggest a dramatic cooling in crypto trading compared with the previous bumper quarter, when Coinbase posted net income of $1.6bn on net revenues of more $2bn, surpassing established exchange operators such as CME Group of Chicago and Intercontinental Exchange.

Trading volume fell to $327bn, down 29 per cent compared with the previous quarter.

Coinbase, which listed publicly in April, also said the number of retail monthly transacting users — retail traders who trade at least once a month, known as MTUs — reached 7.4m in the quarter, up from 2.1m a year ago but down from 8.8m in the previous quarter.

Net income stood at $406m, beating consensus estimates of about $380m.

It comes as wider crypto market hype and volatility have reduced over the summer as the meme stock revolution lost momentum. Last month the online brokerage Robinhood also reported a sharp drop in crypto trading, hurting the company’s overall growth.

“As our year-to-date results have clearly demonstrated, our business is volatile,” Coinbase said in a shareholder letter, urging investors to take a “long-term” view of the crypto market.

“While we entered Q3 with softer crypto market conditions, driven by low volatility and declining crypto asset prices, market conditions improved meaningfully later in the quarter which we continued to see into early Q4,” it added.

Indeed, bitcoin and ethereum, the two most popular cryptocurrencies, hit record highs on Monday of more than $68,000 and $4,830 respectively. The two digital coins accounted for 19 per cent and 22 per cent respectively of the total trading volume on the platform in the third quarter, the company said, with other crypto assets representing the remaining 59 per cent.

Recently, the company has started to diversify into new business areas, for example, announcing last month that it will launch a marketplace for non-fungible tokens amid the ongoing digital collectible craze.

On a call with investors on Tuesday, Brian Armstrong, Coinbase chief executive, said that NFTs would be a large market for digital assets in the future, potentially even “bigger” than its cryptocurrencies business. He added that he intended for the company’s NFT marketplace to be more like “Instagram” where users could showcase their digital art as part of a social profile, rather than an auction platform such as eBay.

Coinbase has been embroiled in a public spat with US regulators, as they assess how to govern freewheeling crypto markets, raising the potential of fresh curbs and compliance costs for crypto businesses in future.

In September, Brian Armstrong accused the US Securities and Exchange Commission of being “sketchy” and opaque after the regulator threatened to sue the company if it launched a product that would have paid interest on staked cryptocurrencies without formally registering to do so.

In an embarrassing volte-face, Coinbase later shelved plans for the product. But it is now calling for the creation of a single dedicated body to regulate digital assets, maintaining that America’s century-old securities laws are ill-suited to crypto markets.

On the investor call, Armstrong said he had met last week with Gary Gensler, SEC chair, and that it was “very productive”.

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