Coinbase (NASDAQ: COIN) grabbed multiple headlines this past week following the company’s Q2 earnings release. The San Francisco-based cryptocurrency exchange platform announced record-breaking profitability, beating analyst guidance by over 150%, with revenues increasing 1,200% from the prior year.
The Company’s staggering growth was driven by a substantial increase in trading volume, with Ethereum’s (ETH) trading volume surpassing Bitcoin’s (BTC) for the first time in the platform’s history. Relative to Q1, ETH saw trading volume on the platform increase by 23%, while BTC’s volume declined by 39%. Together, the two cryptocurrencies represented 50% of Coinbase’s total trading volume for the quarter. ETH currently has the second-largest market cap among all cryptocurrencies and its prominence ought to continue in conjunction with Defi-network expansion.
Following Coinbase’s earnings, market sentiment changed direction when Circle Internet Financial, Coinbase’s partner on USD stablecoin, disclosed that the stablecoin’s collateral was invested in commercial paper and corporate bonds. The development forced Coinbase to remove its guarantee of the stablecoin’s ‘all-cash backing’ and 1:1 USD peg. While commercial paper and corporate bonds are highly liquid assets, both asset classes are sensitive to changes in the overall interest rate environment, making their values inherently more volatile than USD. Previously, the promise of an ‘all-cash backing’ and guaranteed value peg redounded to the USD stablecoin amassing $28 billion in investment. However, this latest development mirrors Tether’s tribulations of earlier this year, where they too garnered unwanted DOJ scrutiny surrounding its own stablecoin’s lack of sufficient collateral.
The next headline dropped a day later when the Senate passed a $1.2 trillion infrastructure bill. The bill included provisions surrounding KYC and IRS disclosure for crypto-brokers. The term ‘broker’ was defined nebulously within the bill, causing confusion because it included crypto-operators such as miners, stakers, and software developers. The language is sure to be challenged in court, however it is unlikely any changes will occur now as it could jeopardize the overall bill’s status.
In discussing the infrastructure bill, President & COO of Coinbase, Emilie Choi, noted that crypto’s inclusion into the bill was actually “a very positive thing. [Cryptocurrency is] no longer a fringe thing, crypto has ultimately entered the mainstream here. This was a setback, there’s no doubt about it for this past week, but we’re playing the long game here.” Though the amendment may create short-term confusion, the elevated debate signifies crypto’s emergence into mainstream thought, and the continued potential for headwinds for its long-term growth, and by proxy, Coinbase.
