Coinbase Q2 saved by USDC as transaction volume plunges

Coin Geek

3 days ago

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The Coinbase (NASDAQ: COIN) digital asset exchange saw its revenue tumble while profit soared in the second quarter, as investment gains offset a dramatic decline in customer activity.
Figures released Thursday show Coinbase generated net revenue of $1.42 billion in the three months ending June 30, effectively unchanged from the same period last year but a 27.5% decline from the first quarter of 2025. Net income totaled $1.43 billion, up from just $36 million in Q224 and from $66 million in Q125.
There's a 'but' here, and like Kim Kardashian, it's a big but. That profit figure would have been a major loss were it not for $362 million in pre-tax gains based on Coinbase's 'crypto asset investment portfolio,' plus $1.5 billion in 'other' income driven by the company's share in Circle (NASDAQ: CRCL), issuer of the USDC stablecoin that went public during Q2 and saw its shares soar.
Coinbase and Circle were once joint venture partners on USDC but Coinbase exited the venture in exchange for 8.4 million Circle shares. Those shares were worth $210 million at the time, but have since grown to ~$1.6 billion.
Coinbase also arranged a deal by which it actually makes more revenue than Circle from USDC activity on its platform/products. JPMorgan (NASDAQ: JPM) analysts said earlier this week that Coinbase generated $300 million in USDC-based revenue in Q1, $70 million more than Circle's total revenue during the same period.
CoinGeek generally sides with the late great Charlie Munger when it comes to adjusted earnings (aka 'bullshit earnings'), but given the scale of the distortions here, we'll make an exception. Coinbase's adjusted earnings were $512 million, down 45% from Q1.
Transaction revenue fell nearly 40% to $764.3 million, with both consumer ($650 million, -40.7%) and institutional ($60.8 million, -38.5%) transactions seriously negative.
Even the 'other' transaction category (largely derived from Coinbase's Ethereum layer 2 network Base) was down 21% to $53.5 million, as 'average revenue per transaction decreased meaningfully' due to Coinbase subsidizing transaction fees in order to build out the network.
Coinbase's monthly transacting users (MTUs) metric casts a ridiculously wide net, including even passive customer transactions like earning rewards on staked USDC. Despite that broad definition, MTUs fell by one million from Q1 to 8.7 million.
BTC remains the top individual contributor in terms of transaction volume, with its share rising three points from Q1 to 30%, while its share of transaction revenue rose 8 points to 34%. ETH's volume share rose four points to 15% while its revenue share gained two points to 12%.
Ripple's XRP token saw its revenue share fall five points to 13% while its volume fell from 11% in Q1 to somewhere below 10% (the cutoff figure for which Coinbase provides specifics). Solana (SOL) saw both its revenue and volume share fall below 10%. Tether's USDT stablecoin, which claimed a double-digit volume share for the previous four quarters, also dropped off the radar.
In what is becoming a pattern, the quarter once again belonged to 'other crypto assets' aka altcoins, which claimed a 55% volume share (+17 points) and 41% of transaction revenue (+5 points).
Expenses headed north
Coinbase's 'subscription & services' segment fared a little better in Q2, with total revenue of $655.8 million, a modest 6% decline from Q1. The decline would have been far greater were it not for stablecoin revenue rising nearly 12% to $332.5 million. All the other subcategories were broadly negative: blockchain rewards fell 26.5% to $144.5 million; interest and finance fee income was down 6% to $59.3 million; and 'other' slid 15% to $119.5 million.
Meanwhile, Coinbase's expenses spiked 15% to $1.52 billion, although this included $308 million in 'other operating expenses,' which the company said were goosed by the embarrassing data theft incident the company (belatedly) disclosed in May and the resulting need to compensate impacted customers.
Transaction expenses were down 19% in Q2 but saw their share of revenue rise to 17% as the company felt obliged to incentivize uneager customers to do something, anything . The company's headcount also rose by 320 souls since Q1, contributing to a 9% rise in tech & development expenses. And of course, stock-based compensation expenses rose 3% to $196 million.
Looking ahead to Q3, Coinbase said it expects July's transaction revenue to come in around $360 million, putting it on pace to easily exceed Q2's dismal figure. However, expenses will continue to rise along with its headcount as it adds new products and builds out new markets.
Coinbase's share price closed Thursday at $377.76, effectively unchanged from the day before. But after-hours trading saw the shares take a 7% tumble as investors digested the unflattering Q2 report.
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The call
On the analyst call, CEO Brian Armstrong was quizzed about Coinbase's plans for tokenized securities, as rival Robinhood (NASDAQ: HOOD) began offering these products outside America a month or so back. Coinbase has reportedly asked the Securities and Exchange Commission (SEC) for approval to offer 'tokenized equities' to U.S. customers, something chief legal officer Paul Grewal called a 'huge priority' for the company.
Armstrong didn't get into specifics on the tokenization bid, saying only that Coinbase was 'working hard on it.' In the meantime, Coinbase is focused on offering such products to customers outside the U.S., 'where people can't easily open a brokerage account.'
Coinbase recently launched perpetual futures trading for U.S. customers on its Coinbase Financial Markets platform. For the time being, the offering is limited to BTC and ETH with up to 10x leverage, but these options are expected to expand in time. Chief financial officer Alesia Haas told analysts that the products were still in their early days but 'we've seen volumes double week over week.' Armstrong added that perp futures are 'the vast majority of all trading volume in crypto offshore' and the exchange recently 'hit an all-time high of open interest of well over $1 billion.'
Asked about the data breach, chief operating officer Emilie Choi said the company's business process outsourcing (BPO) strategy was 'something we have to make sure we have our arms around.' With hacks and exploits proliferating, Choi said 'we have to think about bringing a lot of this machinery in-house.'
Choi added that Coinbase was 'automating as much as we can' with the help of AI but 'the big takeaway' from the breach was the need to ensure that the customer service agents 'aren't able to be approached in a way that they were with the BPOs.'
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ResearchCon?
As Q2 demonstrated, Coinbase's reliance on altcoins is increasing, but some of the tokens it chooses to list on the exchange are prompting questions as to how these decisions are made.
On July 25, Coinbase announced that it had added ResearchCoin (RSC) to its token listing roadmap. On July 30, Coinbase confirmed that it was adding support for RSC on the Base network. RSC is the governance/rewards token of ResearchHub, a platform that marries publishing scientific studies with fundraising in what it calls the 'decentralized scientific economy.'
The RSC token's fiat price was hovering around $0.39 at the time of Coinbase's initial announcement, but within a few hours shot up to $0.55. Over the next few days, the token made further gains, and topped $0.81 by mid-Thursday. However, the token took a deep dive about an hour before Coinbase's Q2 report was released and has slid to $0.55 as this is being written.
Armstrong is a co-founder of ResearchHub, so he felt the need to tweet a denial that he had any role in Coinbase's decision to list RSC. It's a standard response for Armstrong, who previously claimed ignorance of why Coinbase seems to list so many tokens in which its venture capital division has a financial stake.
Coinbase also saw fit to give Armstrong some cover, echoing his claims that he 'is not a reviewing or approving member of the Coinbase Digital Asset Support Group, which reviews and approves for listing.' But since Coinbase is the first major exchange to list RSC, not everyone is buying this legalese.
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JPMorgan, Coinbase cut out data middlemen
Coinbase recently struck a deal with PNC Bank, which has over 2,600 branches across the U.S. Asked Thursday whether Coinbase had similar 'crypto-as-a-service' deals with tradfi institutions in the pipeline, Armstrong cited the company's recent deal with JPMorgan Chase (NASDAQ: JPM) and said the rest of the tradfi sector should 'give us a call.'
Earlier this week, Coinbase announced that it was partnering with JPM to allow bank customers the ability to directly link their Chase accounts to Coinbase, to use their Chase credit cards to fund Coinbase accounts, and to transfer Chase Ultimate Rewards to USDC (via Base). The account-linking function is set to take effect in 2026, but the other options are expected to go live later this year.
Previously, Coinbase relied on third-party data aggregators like Plaid to provide access to bank customer info but the direct deal with JPM will eliminate these middlemen (for JPM bank customers). A spokesperson told Bloomberg that Coinbase plans to maintain its aggregator ties, at least, until it can strike similar deals with other banks.
The announcement came just as the Consumer Financial Protection Bureau (CFPB) appeared to thwart JPM's plans to impose stiff fees on aggregators that serve as bank-to-fintech bridges. Aggregators were accessing bank customer info free of charge and providing this info (for a fee) to fintech firms, including crypto operators, and JPM claimed the volume of the data requests had become too much of a drain on its systems.
JPM announced its fee plans a month ago, not long after the CFPB announced it would rescind its open banking rule, which was approved late last year under the Biden administration. But the CFPB's new leadership abruptly reversed course this week following an appeal to President Trump by a coalition of aggregators, fintechs, and crypto lobby groups.
JPM told Bloomberg that it was open to establishing direct ties with other fintech firms and had formed a team for this purpose. It's unclear how many fintechs would be willing to strike individual deals with each financial institution rather than strike one deal with an aggregator that covers all banks.
There are distinct advantages to direct deals with banks, which are far more equipped to handle 'know your customer' and anti-money laundering (AML) compliance obligations than many fintechs.
This is the second Coinbase-JPM hookup in as many months, following the June launch of JPM's stablecoin-like permissioned 'deposit token' JPMD on Coinbase's Base network. What other CB/JPM team-ups might be in the pipeline can only be guessed at.
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Coinbase can't seem to play nice with politicians
On July 31, Coinbase released a two-minute music video called 'Everything is Fine,' which takes a comical swipe at the United Kingdom's crumbling empire. The video's accompanying text states: 'If everything is fine, then don't change anything at all. But when the financial system isn't working for so many people in the UK, it needs to be updated.'
More About Advertising quoted Coinbase group creative director Jean Morrow saying the video 'uses humor and a fair amount of dancing to inspire an important conversation: are there alternatives to the existing financial system? And where can crypto fit in to give regular people more options and control?'
Morrow claimed Coinbase 'wanted to connect with Brits on a cultural level,' but one wonders if it's really a winning strategy for a bunch of billionaire crypto bros to mock an entire nation as downtrodden schlubs embracing denial as a coping mechanism.
While the U.K. is now Coinbase's largest market outside the U.S., its U.K. experience hasn't been smooth. Despite hiring former U.K. chancellor George Osborne as an advisor, the company was fined £3.5 million in July 2024 for 'repeated and material breaches' of the country's anti-money laundering rules. Coinbase U.K. bounced back to obtain a Virtual Asset Service Provider (VASP) registration in February.
In June, Armstrong was in London, meeting with policymakers, expressing optimism mixed with coded warnings about the U.K. needing to seize the opportunity to embrace crypto. The visit must have gone well, hence the video mocking U.K. citizens.
Last December, Coinbase launched a U.K. branch of its Stand With Crypto astroturf lobbying group, but stateside, Coinbase's political pressure campaigns have begun to rankle some U.S. politicians. This week, some senior Republican figures told Wired Coinbase was 'being hissy pissy' and trying to 'throw [their] weight around' by telling Congress how to proceed on passing digital asset legislation.
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