Coinbase surprised investors on Tuesday with its fourth-quarter earnings, reporting net revenue of $605 million, compared with estimates of $588 million. Despite the gap in expectations, the crypto exchange’s revenue was still sharply down year over year, with a 76% decrease from its net revenue in the fourth quarter of 2021 and a 57% decrease in full-year net revenue from 2021.
In its shareholder letter, Coinbase attributed the difficult year to overall trends in the sector, with the crypto market cap declining 64% or about $1.5 trillion over the course of 2022. As a result, the exchange’s total trading volume declined 50% from 2021.
“To state the obvious, 2022 was a challenging year for crypto market and our transaction revenues,” Coinbase wrote in its shareholder letter.
The company shared positive developments as well, including increased trading activity compared with 2020, before crypto’s historic bull run, as well as its partnerships with leading companies such as BlackRock. According to the letter, roughly 25% of the top 100 largest hedge funds have onboarded with Coinbase, as opposed to just a handful at the end of 2020.
The fourth quarter of 2022 also yielded better results than the previous quarter, with net revenue up 5%, despite the collapse of competitor FTX and the ensuing shock to crypto markets in November. Coinbase’s share price rose in after-hours movement.
Interest income continues to climb for Coinbase, with the company reporting revenue of $182.2 million, up from $101.8 million in the third quarter of 2022 and just $7.6 million in the fourth quarter of 2021. This rise can be attributed to Coinbase’s lucrative partnership with Circle to produce the stablecoin USD Coin, with the two companies splitting the revenue generated by the dollar-equivalent reserves backing the tokens. With interest rates soaring, USDC has proved to be a bright spot amid the bear market.
Despite the steps forward, Coinbase trading volume continues to decrease for both consumers and institutional investors, and net losses are continuing to mount—$557 million for the fourth quarter of 2022, compared with a profit of $840 million in the fourth quarter of 2021, and an overall loss of $2.625 billion for the year.
The first quarter of 2023 did not get off to an easier start for the beleaguered exchange. In early January, Coinbase announced it had reached a $100 million settlement with the New York State Department of Financial Services for failures in its compliance program, although onlookers lauded the company’s efforts to play by the rules, in contrast with failed competitors like FTX. A week later, Coinbase announced it was laying off 20% of its staff.
Coinbase’s NFT rollout also took a hit with the departure of chief product officer Surojit Chatterjee, announced in late January, as well as the end of its NFT drop program in early February. Data showed that 24-hour trading volume for Coinbase NFTs hovered around $100.
Another Coinbase product is at risk, with the U.S. Securities and Exchange Commission’s decision to go after Kraken’s crypto staking program, which resulted in the end of the service. The aggressive action by the regulator could reinvigorate Coinbase as it continues its march through the Crypto Winter. Brian Armstrong vowed to defend staking in court if the SEC goes after the exchange’s lucrative offering.
