Investors Are Switching Out Of Trading During The Bear Market

    • Coinbase’s ATRPU falls by 45% to 2019 levels.
    • Coinbase’s yield interest revenue rises by 38% while transaction revenue falls by 60%.

    Every industry has a bellwether, or a face of the entire flock. In the cryptocurrency industry, this bellwether is Coinbase, the publicly listed behemoth. The cryptocurrency exchange has been around for over 10 years and survived a few bear markets. This is a testament to its resilience and its users’ resolve.

    As the market turns bearish yet again, this resolve of both the investors and the exchange will be tested. And it looks like Coinbase is chasing revenue at the expense of its users.

    Transactions Up Revenue Down

    In the first quarter of 2022, the exchange’s revenue came in at $1.1 billion, below analyst expectations of nearly $1.5 billion in revenue. Due to the massive 54% decline in revenues on a quarterly basis, the market sold off the company’s stock.

    What was even more surprising was that the top-level revenue decline was the decline in the average transaction revenue per user (ATRPU). Coinbase being an exchange earns revenue from each transactions, whether this is a transaction to buy or sell. Think about a communications company like AT&T or Verizon that earns revenue on every plan sold to consumers. Bottom line is, this is the metric that matters for a cryptocurrency exchange. And it’s falling bad.

    In Q1, Coinbase’s ATRPU was $35 on average. By the end of the quarter it fell to $25. At $35, the ATRPU is at 2019 levels and 45% below the 2021 ATRPU of $64.

    Source: Coinbase’s Letter To Shareholders

    Notice the sharp fall in ARTPU in the foruth quarter of 2021. When the crypto markets were surging last year, the company generated a massive revenue of $2.49 billion. And the way the second quarter of 2022 kicked off, it’s likely that Coinbase will be earning less than $25 per tranasacting user in this quarter, leading to a further drop in revenue.

    2019 Levels Transactions Not Price

    The interesting question is why is Coinbase’s average revenue per transaction down so badly even if crypto prices are up in the same period? The reason is volume and demand for transacting revenue related services. The exchange’s volumes are down marginally by 8% in one year, but on a two-year basis volumes are up by nearly 16x.

    In the investor letter, Coinbase mentioned that the reason for the drop in revenue per transaction is because of yield generating services. In addition to buying and selling, the exchange offers staking and yield generating services. This is a one-time transaction rather than a recurring one with trading. And this is why the ARTPU is down on a one-year basis. For instance, the exchange’s yield revenue rose on a Q-o-Q basis by 38% despite transaction revenue falling by over 60%.

    All this and more suggests that Coinbase is providing more than exchange services. The exchange is positioning itself, either by force or design, as a platform to provide inflation-beating returns either through yields or staking. For other exchanges as well, this will prove to be the theme as the market turns bearish..

    Aakash Athawasya
    Aakash is a market analyst at Vauld. He looks at on-chain data of Bitcoin, ETH, and the macroeconomic effect of crypto on the equity and commodity markets.

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