Coinbase profits squeezed as trading slows

Coinbase reported fourth-quarter earnings that fell short of market expectations after transaction revenue dropped below the $1 billion mark, underscoring the pressure on retail trading volumes as digital asset prices cooled towards the end of the year.

The largest US-listed cryptocurrency exchange said total revenue declined from the previous quarter as trading activity moderated across its retail and institutional platforms. Transaction revenue, which remains the core driver of its business, slipped under $1 billion, missing analysts’ forecasts and sending its shares lower in after-hours trading. In a letter to shareholders, the company cautioned that “crypto is cyclical, and experience tells us it’s never as good, or as bad as it seems,” signalling management’s view that downturns are part of a broader market rhythm.

The earnings miss comes against a backdrop of heightened volatility in digital asset markets. Bitcoin and other major tokens had rallied strongly earlier in the year, buoyed by expectations of monetary easing and the approval of spot Bitcoin exchange-traded funds in the United States. However, trading momentum softened during the final months of the quarter as price swings narrowed and retail participation eased from earlier peaks.

Coinbase’s quarterly performance illustrates the continued sensitivity of crypto exchanges to fluctuations in market sentiment. While subscription and services revenue — which includes staking, custody, and interest income — has grown steadily over the past year, it has yet to fully offset swings in trading activity. Analysts have long noted that the company’s reliance on transaction fees leaves it exposed during quieter market periods, particularly when retail investors pull back.

Chief executive Brian Armstrong has repeatedly sought to reposition the business beyond simple trading. Under his leadership, Coinbase has expanded its institutional custody services, deepened its derivatives offering, and invested in its layer-two blockchain network, Base. The company has also pursued international expansion, targeting markets in Europe and Asia as regulatory clarity improves in some jurisdictions.

Despite the earnings disappointment, Coinbase remains profitable on an adjusted basis, reflecting cost discipline introduced after the downturn that followed the collapse of several crypto firms in 2022. The company undertook significant workforce reductions during that period, trimming operating expenses and streamlining its product focus. Those measures have improved margins during periods of stronger trading, though the latest figures highlight the limits of cost-cutting when volumes ebb.

Institutional trading volumes, which can account for a large share of total activity, were mixed during the quarter. Large asset managers and hedge funds have entered the space in greater numbers since the launch of regulated investment products tied to Bitcoin, but many continue to trade over-the-counter or through alternative venues. Coinbase has attempted to position itself as a trusted counterparty for such clients, emphasising compliance and transparency.

Regulatory developments also continue to shape the company’s outlook. The United States Securities and Exchange Commission has pursued enforcement actions against several crypto firms, including Coinbase itself, alleging the operation of unregistered securities exchanges. Coinbase has contested those claims in court, arguing that digital asset trading platforms require tailored regulatory frameworks rather than being subject to existing securities laws. The legal proceedings remain ongoing and represent a material risk factor for the business.

Market participants are closely watching how shifts in monetary policy and macroeconomic conditions affect digital asset demand. Expectations around interest rate cuts, inflation trends, and geopolitical tensions have influenced investor appetite for risk assets, including cryptocurrencies. When risk sentiment improves, retail traders typically return to the market in larger numbers, boosting exchange revenues. Conversely, periods of caution often lead to thinner volumes.

The company’s commentary acknowledged these dynamics, stressing that its long-term strategy is designed to weather market cycles. Management highlighted continued investment in infrastructure, compliance, and product development, arguing that positioning during slower phases can yield advantages when sentiment rebounds. Analysts broadly agree that scale and brand recognition give Coinbase a competitive edge, particularly in the United States, where it is widely viewed as a benchmark for regulatory engagement.

Still, competition remains intense. Rival exchanges, including offshore platforms that operate under lighter regulatory regimes, often offer lower fees, pressuring Coinbase’s margins. Decentralised exchanges, which allow users to trade directly from digital wallets without intermediaries, have also gained traction, particularly among more sophisticated traders.

Shares of Coinbase have been volatile over the past year, reflecting swings in crypto prices and regulatory headlines. After surging alongside Bitcoin during bullish phases, the stock has tended to retreat when trading volumes decline. Investors continue to debate whether Coinbase should be valued primarily as a high-growth technology platform or as a cyclical financial services firm tied closely to asset prices.