Trading volumes in focus after Bitcoin’s slide from highs

    Coinbase Global (COIN) is set to report second-quarter results after market close on Tuesday, offering a look at the performance of the largest cryptocurrency exchange in the U.S. following a volatile stretch of trading for digital currencies.

    Here are the main results Coinbase is expected to report, compared to consensus data compiled by Bloomberg:

    Coinbase shares have traded choppily since the stock’s direct listing in April, and have largely languished below their opening price of $381 apiece amid a broader drop in cryptocurrency prices.

    Bitcoin prices (BTC-USD) hit an all-time high of more than $64,000 around the time of Coinbase’s public debut, but have since slid to a year-to-date low of less than $30,000 as of mid-July. Bitcoin, the largest cryptocurrency by market capitalization, was trading around $46,000 as of Tuesday morning.

    The drop in the prices of bitcoin and other major tokens like ethereum (ETH-USD) coincided with a regulatory crackdown against cryptocurrencies and mining in China, as well as increasing concern over digital currencies’ mainstream adoption. Tesla CEO Elon Musk said in May the electric carmaker would no longer accept bitcoin as payment for vehicles. However, Tesla (TSLA), along with a number of other companies including Square (SQ) and PayPal (PYPL), still hold bitcoin on their balance sheets. 

    Weakening cryptocurrency-related results in these other companies’ businesses during the second quarter presaged a potential slowdown for Coinbase. Bitcoin comprised $2.7 billion of overall revenues for Square in the second quarter, down from $3.5 billion in the first quarter of 2021. And Tesla, for its part, booked an impairment of $23 million related to bitcoin in its second quarter, after posting a positive impact of $101 million from selling some of its bitcoin holdings in the first quarter of the year.

    Given these trends in other companies with exposure to cryptocurrencies, quarterly trading volumes for Coinbase are set to be closely watched. In the first quarter, Coinbase said bitcoin and ethereum comprised 39% and 21% of its overall trading volumes, respectively — leaving the company vulnerable to a drop in trading fee-related revenues if these volumes declined significantly alongside the drop in prices. Still, Wall Street expects to see Coinbase’s trading volumes increase sequentially to $377.4 billion for the second quarter, compared to $335 billion during the first quarter.

    Photo by: STRF/STAR MAX/IPx 2021 2/26/21 Coinbase filed its S-1 on February 25th to go public, listing on the Nasdaq. Coinbase’s IPO valuation could be the largest by a U.S. tech company since Facebook went public. STAR MAX Photo: Coinbase logo photographed off an iphone SE 2020.

    Going forward, regulatory risks also remain a concern for Coinbase and other crypto platforms that rely heavily on trading-related fees. Last week, Securities and Exchange Commission Chair Gary Gensler likened the crypto trading environment to “the Wild West,” and suggested a number of trading platforms were offering illicit, unregistered securities. And on Monday, the Wall Street Journal reported that former SEC director Brett Redfearn had resigned from serving as head of Coinbase’s capital markets group after just four months, reportedly due to a strategic shift at the crypto platform.  

    And elsewhere in the U.S. regulatory landscape, legislative risks also remain. On Monday, a proposal by a bipartisan group of senators that would limit the scope of oversight in the cryptocurrency industry ultimately failed. 

    The new proposal, which would have been an update to a provision in the Biden administration’s $550 billion infrastructure bill, would clarify the rules over who was considered a broker of cryptocurrencies and who would need to report transactions to the Internal Revenue Service, making sure not to include other players in the crypto space like software developers or those that validate transactions into the new reporting requirements. The language for this provision in the bill now excludes these clarifications, drawing the ire of those in the cryptocurrency and adjacent industries, including from Square CEO Jack Dorsey.

    “Regulation is probably more of a short-term speed bump,” Hugo McDonaugh, co-founder of Cryptograph, told Yahoo Finance on Monday. “Long-term, regulation for the space is sensible.”

    “I do think that they should spend a lot of time thinking about how to apply frameworks to this industry and not just try to hit a one size fits all into it and put something last minute into a must-pass bill and try to increase some oversight or regulatory system in that way,” he added. 

    This post will be updated with the results of Coinbase’s Q2 earnings results Tuesday after market close. Check back for updates.

    Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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