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Coinbase beats earnings estimates as analysts say regulation will ‘stifle’ innovation

August 11, 2021 Coin Telegraph

Bitcoin

COIN exceeded earnings estimates but analysts caution that blanket crypto-sector regulation will “stifle innovation” and possibly cast a shadow on Coinbase's growth.

Coinbase Global (NASDAQ: COIN) rebounded during the early trading hours on Aug.11 after it beat Wall Street forecasts for sales and revenues in the second quarter.

The cost to purchase one COIN share surged 4.7% to $282.34 at the New York opening bell. Later, bids for the COIN rose to as high as $294 before pulling back to its current price at $279.72.

*Coinbase stock daily chart. Source: TradingView*

Strong Q2 earnings for Coinbase

Coinbase Global reported better-than-expected earnings in the second quarter of 2021and posted net revenue of $2.3 billion. That came to be 27% higher from the previous quarter and 1,042% up on a year-over-year basis.

Meanwhile, Coinbase's net income rose from $32 million to $1.6 billion in the same period, surpassing earnings of older and more traditional exchange operators, including the CME Group of Chicago, which earned $510 million and made $1.2 billion in revenue in Q3, and the Intercontinental Exchange, which reported a $1.3 billion in earnings.

The positive Coinbase results appeared as various entities continue to accumulate Bitcoin and the firm reported that its monthly transaction metric climbed to 8.1 million in Q2 from $6.1 million in Q1. Meanwhile, its trading volume rose to $462 billion from $335 billion in the same period.

In excerpts from the earnings call transcript, Coinbase CEO Brian Armstrong is heard discussing plans to expand Coinbase operations in the future.

Armstrong said:

"We're also focusing on international expansion, another form of decentralization, and just listing more and more assets. We want to be the Amazon of assets, list every asset out there in crypto that's legal."

In a letter to shareholders, Coinbase shared plans to explore decentralized finance (DeFi), adding that mainstream customers and institutions would soon be using the technology that cuts out traditional intermediaries from financial services, such as lending and borrowing.

Analysts still express caution

On the flip side, Coinbase warned that declining volatility in the cryptocurrency market that could impact its earnings in the year ahead.

The firm stated that its monthly transacting users (MTU)—retail traders that trade on exchanges at least once a month—surged 44% to 8.8 million at the end of Q2. Nevertheless, the net MTU declined in July and August, prompting Coinbase to lower its annual users estimate from 9 million to 8 million.

Declining trading volumes is another metric concerning analysts and the figure turned out to be weaker in July, mostly due to Bitcoin price slumping below $30,000.

According to Wedbush Securities analyst Moshe Katri, COIN's primary concerns are "mostly related to the regulatory environment."

Katri is likely referring to the US Senate approving a roughly $1 trillion infrastructure bill, a part of which requires digital asset brokers to report capital gains to the Internal Revenue Service. The bill aims to raise $28 billion in a decade by taxing the cryptocurrency sector but it failed to define who it considers "brokers."

Anne Fauvre, COO of data security firm Oasis Labs, said that the bill is too vague, fearing that it might end up covering even entities that are neither brokers nor hold any personal information of their customers.

Fauvre told Cointelegraph, "Regulation should be seen as a way to create guardrails around industries" and "this bill would stifle the next 20 years of innovation in the US as we know it."

Adding to these regulati concerns, Coinbase CFO Alesia Haas told CNBC that U.S. regulators and lawmakers need to know that every cryptocurrency is not a security. Armstrong said that Coinbase is investing in a crypto advocacy group called the "Crypto Council for Innovation" to ensure "sensible regulation" in the US.

COIN's technical outlook is positive

Katri iterated a 'Buy' rating for the Coinbase stock and suggested a rise to $300 in the next 12 months, which is a 3.03% upside estimate.

*Analyst rating consensus for the Coinbase stock. Source: TipRanks*

According to TipRanks, the average analyst consensus for COIN was also a 'Buy' with a $369.25 price target per share by next year.

Coinbase removes ‘backed by US dollars’ claim for USDC stablecoin

August 11, 2021 Coin Telegraph

Circle

The Coinbase website now states that USD Coin is “backed by fully reserved assets,” contrary to the now-removed claim of “backed by U.S. dollars in a bank account.”

USD Coin (USDC), Circle’s dollar-pegged stablecoin, seemingly lost one of its biggest competitive advantages over its rival, Tether (USDT).

Major crypto exchange Coinbase made an important change on the USD Coin page on its website following an audit which revealed that not all of USDC’s reserves were held in cash. This rain contrary to the previous statement that “each USDC is backed by one U.S. dollar held in a bank account.”

Coinbase visitors are now greeted with a statement that says USDC is “backed by fully reserved assets” when they enter the USD Coin webpage. This new claim states:

“Each USDC is backed by one dollar or asset with equivalent fair value, which is held in accounts with US regulated financial institutions.”

*Coinbase changed the promotional material for USDC. Source: Bloomberg*

USD Coin stands is the eighth-largest cryptocurrency with a total market cap of over $28 billion. USDC is also the second-largest stablecoin after Tether, which has almost $63 billion in total assets, according to its latest Consolidated Reserves Report.

Since its inception, USDC soared as a stablecoin fully backed by U.S. dollars. On the other hand, Tether found itself in hot water with regulators on more than one occasion due to undisclosed commercial paper accounting for almost half of USDT’s total reserves.

However, an audit by multi-national tax advisory firm Grant Horton showed that 61% of USDC’s reserves were held in cash and cash equivalents while 9% of the reserves were held in commercial paper. The audit report defines cash as deposits at banks and Government Obligation Money Market Funds, while cash equivalents are defined as securities with an original maturity less than or equal to 90 days.

The report revealed the USDC reserves include Yankee CDs and US.. Treasuries and certainly are not “fully backed by U.S. dollar held in a bank account.” According to Bloomberg, the wording for the USD Coin on the website was changed the day the mainstream media contacted Coinbase about the report and related marketing material.

Coinbase spokesman Andrew Schmitt reiterated to reporters that each USDC is backed by one dollar or asset with equivalent fair value:

“Users can always redeem 1 USD Coin for US$1.00. We have added additional detail to our website for customers to understand more about USDC reserves.”

Circle, the company that oversees USDC in partnership with Coinbase under The Centre consortium, recently announced its plans to become a full-reserve national digital currency bank in the United States. Circle CEO Jeremy Allaire said the company is willing to operate under regulators' supervision and risk management requirements.

As part of the announcement, he said that USDC will grow to “hundreds of billions of dollars in circulation,” continuing to support high-trust economic activity and become a popular tool in financial services and internet commerce applications.

Coinbase did not immediately respond to Cointelegraph's request for comment.

COIN