Coinbase Global reports SEC probe, $1B losses, stock tumbles, trading volume plummets

Coinbase continues to face headwinds in 2022. The company said it’s being probed by the US Securities and Exchange Commission over its staking programs, which allow users to earn rewards for holding certain cryptocurrencies.

The company “has received investigative subpoenas and requests from the SEC for documents and information about certain customer programs, operations and existing and intended future products,” according to a quarterly regulatory filing. The requests relate to Coinbase’s staking programs, asset-listing process, classification of assets and stablecoin products, the company said.

According to a shareholder letter released on Tuesday, the crypto exchange has also registered a $1.04 billion operating loss in Q2 of 2022, a stark contrast from the $874.7 million profit it reported in the same quarter last year. At the back of the announcement, Coinbase stock also dipped four percent, closing 10 percent lower than the previous day.

The company's second-quarter results show that net revenue for Q2 came in at $803 million, down 31percent compared to Q1's $1,165 million. The company cited lower trading volumes as the reason for declining revenue, with a 200,000 drop in monthly transacting users (MTUs). Total trading volume for the quarter was also in the red, coming in around $217 billion, down by a massive $92 billion from Q1.

All-in-all, it's been a terrible year for Coinbase so far. In mid-June, the exchange let go of about 18 percent of its workforce, translating to almost 1,100 job losses. This was around the same time Bitcoin began its dramatic slump toward $20,000.

A couple of weeks later, Goldman Sachs downgraded Coinbase's COIN rating to 'sell' after its stock plummeted nearly 70 percent since initially being listed on the Nasdaq in April 2021. As the first publicly traded cryptocurrency exchange, Coinbase's stock rose to a high of $342 last year, but at the time of writing, it was languishing at a lowly $87.68.

In April 2022, Coinbase also announced hiring 1,000 employees in India to power its expansion initiatives. The exchange launched operations with a large event held in Bengaluru on April 7. However, just a couple of days later, Coinbase was forced to halt payments through the Unified Payments Interface (UPI) due to regulatory troubles with government bodies. This was a significant setback given UPI's popularity as a payment mode in India.

However, despite being heavily in the red, Coinbase continues to push partnerships and press toward its mission of being a one-stop solution for crypto trading. A few days ago, the exchange announced a partnership with BlackRock, the world's largest asset manager with close to $10 trillion in AUM. As per the deal, Coinbase will allow customers of BlackRock to trade crypto through Coinbase.

Coinbase is also looking at staking as a major revenue stream in the future, especially with the Ethereum merge just around the corner. The exchange already offered staking rewards for tokens such as Ethereum, Algorand, Cosmos, and Tezos. It then added Cardano and Solana to the list in March and June, respectively. According to its second-quarter report, 67 percent of the nine million MTUs transacted with non-investing products, notably staking.

And even with the downturn over the last two quarters, Coinbase remains a relatively wealthy company. It had cash and equivalents worth $5.68 billion at the end of Q2 2022. The exchange also holds USDC stablecoins worth $361 million, a drastic increase from $100 million at the end of 2021.