Coinbase Q3 Earnings Preview: Beyond Bitcoin – Will COIN Spark a New Bull Run?

Crypto trading platform Coinbase Global (ticker: COIN) is set to report its third-quarter earnings after the market closes on Wednesday. Analysts expect the results to show that trading volume has slowed over recent months, but the real test will be whether the company is successfully diversifying its revenue sources beyond Bitcoin trading.

According to analysts tracked by FactSet, Coinbase is expected to report earnings per share of $0.45 in the third quarter, up from $0.14 in the second quarter and a $0.01 loss in the same quarter last year. Revenue for the third quarter is projected to reach $1.26 billion, up from $674 million in the same period a year ago.

Coinbase's stock price has been trading within a range lately. It surged over 50% between early 2024 and March 25, reaching a high of $283.48. Since then, the stock has fallen 22%, currently standing at $221.

Despite this, Bitcoin (BTCUSD) and other cryptocurrencies have rallied significantly. On Tuesday, Bitcoin surpassed $73,000, marking an 18% increase since June 30. Most of these gains came after the third quarter ended, and some analysts believe Coinbase's report will show flat trading volume for the period. Oppenheimer analysts Owen Lau and Guru Sidaarth estimated in an earlier report this month that trading volume in the third quarter fell 23% compared to the previous quarter.

Coinbase’s trading volume will continue to be influenced by investors' risk appetite. However, for more than a year, company executives have emphasized their efforts to diversify revenue streams, aiming to remain profitable whether or not crypto traders are active.

The company’s other sources of revenue include staking services, where investors use Coinbase to stake their tokens in exchange for yield, with Coinbase taking a cut. Additionally, Coinbase generates revenue through its partnership with the USDC stablecoin, which is pegged to the dollar and backed by reserves. These reserves, held in Treasuries and other safe assets, generate interest, part of which goes to Coinbase. Between Q2 2023 and Q2 2024, the company’s subscription and services revenue—encompassing staking and USDC—rose 79%, reaching $599 million.

A key factor driving this revenue growth was rising interest rates, which enabled Coinbase to earn higher interest income. However, as the Federal Reserve begins to cut rates, these revenues may begin to level off.

Both USDC and staking have attracted regulatory scrutiny, and the outcome of the November election could have implications for their sustainability.

Former President Donald Trump has promised to fire Securities and Exchange Commission (SEC) Chair Gary Gensler and usher in a pro-crypto era if he returns to the White House. Coinbase is currently one of the crypto companies being sued by the SEC for allegedly operating as an unregistered securities exchange, an accusation that Coinbase denies.

Although Vice President Kamala Harris, if elected, is unlikely to remove Gensler, her campaign has indicated support for clearer regulations for the crypto industry.

A more crypto-friendly SEC could act as a catalyst for Coinbase. The SEC has maintained that most cryptocurrencies—apart from Bitcoin and possibly Ether—are securities, which must be registered with the agency. Crypto firms argue that the process is practically impossible to comply with. With court rulings still pending, the legal landscape remains uncertain, putting a substantial portion of Coinbase's revenue at risk. A new SEC chair could decide to withdraw ongoing lawsuits or halt new ones.

Bitcoin may be the biggest contributor to Coinbase’s transaction volume, accounting for over one-third of it, but altcoins have become an increasingly significant revenue stream for the company. In Q2 2024, cryptocurrencies other than Bitcoin and Ethereum represented 42% of Coinbase's transaction revenue, up from 39% in Q2 2023.

Coinbase has also launched derivatives trading for foreign customers, which company executives describe as an important future growth driver. Last quarter, Coinbase did not break down specific earnings from derivatives trading but noted that it contributed to overall transaction revenue growth.

Coinbase’s Q3 EPS is expected to be $0.45. If results exceed expectations, the stock could rise to $272, with potential to test its previous high of $283.48. Given Trump's strong odds of winning the upcoming election and Bitcoin’s breakthrough past the $70,000 mark, Coinbase may be poised for a new bull run. What do you think?