Shares in the cryptocurrency exchange Coinbase saw gains of over 4% by midday Tuesday, reaching nearly $222. This surge follows a trend where Coinbase’s stock performance mirrors the broader digital asset market, heavily influenced by trading volume and fees. In the first quarter, trading fees accounted for 67% of Coinbase’s revenue. Monday’s trading volume stood at $788.3 million, a significant drop from $3.2 billion on March 4.
“Volume has pulled back quite a bit, and the price has come back from the peak in the first quarter somewhat. So [Coinbase] is going to get lower profitability in the second quarter,” Paul Gulberg, a senior equity analyst at Bloomberg Intelligence, told Fortune.
Declining Digital Asset Performance
Over the past 30 days, major cryptocurrencies like Bitcoin, Ether, and Solana have seen declines of about 11%, 9%, and 18%, respectively, struggling to gain momentum since mid-March. This trend is partly due to the underperformance of the 11 spot Bitcoin exchange-traded funds (ETFs) approved by the SEC in January. Since then, Bitcoin prices have fluctuated significantly, with net outflows from these ETFs starting on June 10 and continuing almost daily, totaling around $1.3 billion, according to CoinGlass data.
Impact on Coinbase
The outflows from Bitcoin ETFs directly impact Coinbase, which serves as the custodian for eight of the 11 ETFs, earning a 0.2% fee. Fewer Bitcoin holdings mean reduced revenue from these fees. Additionally, Coinbase holds over $207 million worth of Bitcoin, making it the public company with the sixth-largest exposure. Shares of MicroStrategy, the largest Bitcoin-holding public company, have dropped about 8% since June 12.
Market Sentiment
Gulberg notes that the recent drop in Coinbase’s stock is primarily driven by market sentiment. With many of the firm’s shares held by retail traders, fluctuations in the digital asset space lead to corresponding movements in Coinbase’s stock. “When you get a lot of noise and activity in the digital asset space, people rush into Bitcoin and Coinbase. And vice versa: When the sentiment dies and slows down, people rush out of Coinbase,” Gulberg explained.
As the market continues to navigate these volatile conditions, Coinbase’s performance remains closely tied to the broader trends in digital asset trading and investor sentiment.
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