Coinbase, the largest cryptocurrency exchange in the United States, has reported a massive net loss of $2.6 billion in 2022. This significant loss has raised concerns among investors about the future of the company.
However, despite the huge net loss, Coinbase remains optimistic about its future, citing the continued growth of its trading volume and revenue from subscriptions and services.
Coinbase trading volume and subscription revenue growth
Coinbase reported a significant increase in trading volume, which grew from $193 billion in 2020 to $830 billion in 2022. Similarly, subscription and services revenues grew over 17 times, from less than $50 million in 2020 to nearly $800 million in 2022.
These growth figures are impressive, considering the highly volatile nature of the cryptocurrency market. The company has also formed industry-leading partnerships with major players such as Blackrock.
Additionally, about 25% of the top 100 largest hedge funds in the world have been onboarded with Coinbase, up from a handful at the end of 2020.
This shows the growing recognition of Coinbase as a trusted platform, especially among institutional clients. Despite these positive growth figures, the exchange’s net revenue for 2022 was down to $3.1 billion, a significant decline from $7.4 billion in 2021.
The decline was mainly due to a 12% drop in Q4 total transaction revenue, which fell to $322 million. This decline was caused by a lower Q4 total trading volume, although Coinbase still gained overall trading volume market share in the quarter.
In Q4, advanced traders on Coinbase’s consumer platform were much less active, driven by multi-year low levels of volatility. As a result, Coinbase experienced a lower mix of advanced trading volume in Q4, leading to an increase in the average consumer fee.
Coinbase also had a higher number of institutional customers onboarding in Q4, primarily due to the recognition of the importance of working with a regulated and trusted custodian, as well as a long-term view on the adoption of crypto as an asset class.
Adjustments in expenses
To reduce expenses, Coinbase made certain adjustments in Q4. Transaction expenses decreased by 19% compared to Q3, primarily due to a reduction in transaction losses from optimization efforts realized in the quarter.
Sales and marketing expenses were up 23% Q/Q, driven by seasonally higher marketing spend. Technology and development expenses were up 6% Q/Q, driven by the timing of certain stock-based compensation awards. General and administrative expenses were up 11% Q/Q, mainly due to the NYDFS settlement.
Despite the decline in transaction revenue, Coinbase’s subscription and services revenue grew 34% Q/Q to $283 million in Q4. When applying constant Q4 average crypto prices to prior quarters, subscription and services revenues would have grown approximately 49% in Q4 compared to Q3.
Blockchain rewards revenue declined 1% Q/Q to $62 million in Q4, representing 10% of net revenue. Coinbase is optimistic about its future and is working to reduce expenses while growing its trading volume and subscription and services revenue.
Although the net loss of $2.6 billion in 2022 is significant, the company remains one of the most trusted crypto platforms in the world with a growing number of institutional clients and partnerships.