Portfolio Unrealized Loss Wallops Coinbase: Q1 Net Profit Plunges 94%, Will $2.9B Deribit Acquisition Turn the Tide?

Original Article Title: "Decoding Coinbase's Q1 Financial Report: Net Profit Plunges 94% Amid Portfolio Unrealized Loss, Deribit Acquisition Boosts Derivatives"

Original Article Author: Felix, PANews

The U.S.-based cryptocurrency exchange Coinbase released its first-quarter (Q1) financial report on May 8, local time. Due to a cooldown in market trading following the previous quarter's post-U.S. election surge, both revenue and net profit fell short of expectations.

As of March 31, adjusted net profit was $527 million. Earnings per share were $0.24, below the market's general expectation of $1.93. Total revenue was $20 billion, slightly below the expected $21.2 billion and lower than the $23 billion in Q4 2024. Q1 trading revenue declined by 19% to $12 billion, with trading volume down by 10%.

Possibly affected by this news, Coinbase (COIN) stock price dropped by 2.67% in after-hours trading, after rising by 5% the previous trading day. COIN has already fallen by 16.83% since the beginning of this year.

Revenue

The Q1 average cryptocurrency asset volatility increased, with BTC hitting a historic high in January. However, due to tariff policies and macroeconomic uncertainty, cryptocurrency prices fell in line with the overall market downturn. Compared to the end of Q4, the total market capitalization of cryptocurrency at the end of Q1 fell by 19% to $2.7 trillion.

Against this backdrop, Coinbase's revenue reached $20 billion, a 10% decrease from the previous quarter; net revenue plummeted by 94% quarter-on-quarter to $66 million, mainly due to a $597 million pre-tax loss in the cryptocurrency asset portfolio, most of which was unrealized losses. Adjusted net profit was $527 million, and adjusted EBITDA was $930 million.

Trading Revenue

According to Coinbase's financial report, trading is its main source of revenue, accounting for over 60% of its total revenue. Q1 trading revenue was $13 billion, a 19% decrease from the previous quarter. Coinbase's spot total trading volume decreased by 10% to $393.1 billion quarter-on-quarter, but outperformed the global spot market, which saw a 13% decrease in trading volume. In the derivatives sector, Coinbase's trading volume reached $803.6 billion, with a continuing increase in market share.

Among them, Q1 retail trading volume was $78.1 billion, a 17% decrease from the previous period. Retail trading revenue was $1.1 billion, down 19% from the previous period, which is consistent with the decline in trading volume. As for institutional trading, institutional trading volume was $315 billion, a 9% decrease from the previous period, and institutional trading revenue was $99 million, a 30% decrease from the previous period.

In addition to the macroeconomic backdrop, the second factor contributing to the revenue decline is the derivatives business. The report states that Coinbase is investing in trading rebates and incentive measures to build liquidity and attract customers. These rebates and rewards have been subtracted from institutional trading revenue.

Other Trading Revenue

Q1 other trading revenue was $68 million, flat compared to the previous period. The number of trades on Base increased by 16% compared to the previous period, but the average revenue per trade decreased by 21%.

Subscription and Services Revenue

Q1 subscription and services revenue was $698 million, a 9% increase from the previous period, primarily driven by the growth of stablecoin and Coinbase One revenue, with the USDC market cap reaching a historic high of over $60 billion. However, blockchain staking revenue decreased by 9% compared to the previous period, partially offsetting this growth. The main reason for the decrease was the decline in average asset prices, especially ETH and SOL.

Stablecoin revenue in Q1 increased by 32% to reach $298 million. Coinbase stated that this growth was partly offset by lower average interest rates. The average USDC holdings in Coinbase's products increased by 49% compared to the previous period, reaching $12.3 billion.

Other subscription and services revenue amounted to $141 million, a 5% increase from the previous period. The number of subscription users for Coinbase One reached a historic high in Q1, and the Coinbase One Premium service (monthly $300) also experienced growth.

Expenses

Q1 total operating expenses were $1.3 billion, a 7% increase from the previous period, equivalent to $91 million. The main reasons were an increase in volatility-related expenses due to early-quarter market activity and losses on held cryptocurrency assets for operations. Technology and development, general and administrative, and sales and marketing expenses combined increased by $40 million, a 4% increase from the previous period, mainly due to increased marketing expenses (including performance marketing and USDC incentives) as well as increased customer support costs. At the end of this quarter, full-time Coinbase employees increased by 5% from the previous period, reaching 3,959 employees.

The transaction fee was $3.03 billion, accounting for 15% of net revenue, a 4% decrease compared to the previous period. The sequential decrease was mainly due to reduced customer transaction activity and a decrease in blockchain reward expenses related to the average asset price decline.

Technology and development expenses were $3.55 billion, a 4% decrease compared to the previous period. The primary reason for the decrease was that, despite an increase in the total number of employees, personnel-related costs decreased. General and administrative expenses were $3.94 billion, a 9% increase compared to the previous period. The increase was mainly attributed to growth in customer support and personnel-related costs. Sales and marketing expenses were $2.47 billion, a 10% increase.

Outlook

In April, Coinbase's total transaction revenue was approximately $2.4 billion. Coinbase expects Q2 subscription and service revenue to be between $6 billion and $6.8 billion, as the expected increase in stablecoin revenue will be offset by the decline in blockchain reward revenue caused by the drop in asset prices; transaction fees as a percentage of net revenue will be around 15%; technology and development as well as general and administrative expenses are expected to be between $7 billion and $7.5 billion.

It is worth mentioning that Coinbase is making a move into the derivatives market, as it announced a $2.9 billion acquisition of the world's largest Bitcoin and Ethereum options trading platform Deribit, including $700 million in cash and 11 million shares of Coinbase common stock, but subject to customary purchase price adjustments. This transaction is pending regulatory approval and satisfaction of other customary closing conditions, expected to be completed by the end of the year. Last year, Deribit's open interest exceeded $30 billion, with trading volumes surpassing $1 trillion.

Coinbase CFO Alesia Haas stated in the earnings call: "We expect Deribit to immediately enhance our profitability and add diversity and resilience to our trading revenue." In addition, Coinbase CEO Brian Armstrong announced in the investor call that this quarter, Coinbase will launch a pilot program that allows businesses to use stablecoins for payments and disbursements.

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