Tanking crypto values and concern about the stability of a stablecoin is resulting in weaker revenue for major crypto exchange Coinbase Global Inc., Moody’s Investors Service reports.
Coinbase reported a 35% year-over-year decline in revenue for the first quarter, the rating agency said, and expenses more than doubled, leaving the firm with a US$430 million net loss.
“A rising cost base during periods of revenue slowdown strains profitability and cash flow, a credit negative,” Moody’s said, noting that the revenue drop was “driven by a combination of lower crypto prices and declining trading volume.”
Unlike traditional securities exchanges, crypto prices matter to Coinbase, since trading fees are geared to the notional value of trades on the platform.
Moody’s said the fee structure “can be very lucrative in a rising market coupled with high transaction volume, as was the case in 2021”
However, if crypto prices decline, trading volumes would need to increase to stop transaction revenue from declining.
Crypto prices have fallen further since the end of the first quarter, Moody’s noted, with Bitcoin down about 34% amid the decoupling of stablecoin Terra from its peg.
Looking ahead, if crypto prices don’t recover, “cost control will become an increasingly important contributing factor affecting Coinbase’s creditworthiness,” the report said.
It added that the company has a “sizeable cash cushion [that] gives it sufficient flexibility to weather a period of lower crypto asset values.”