Crypto brokerage Coinbase has been hit hard by the meltdown in bitcoin prices this year. The stock has plunged 65% so far in 2022. And the company’s latest earnings, due out after the closing bell Tuesday, are likely to be miserable.
Wall Street is forecasting a more than 50% drop in revenue from a year ago and expects that Coinbase will report a loss of about $585 million. The company posted a $1.6 billion profit in the second quarter of 2021.
Still, some investors are hopeful the worst may soon be over. Shares of Coinbase have surged more than 30% in the past five trading days.
The rally is due in part to the recent rebound in crypto prices. Ethereum, for one, has surged more than 8% in the past week. But there is another big reason for Coinbase’s comeback.
A partnership with Wall Street giant and iShares owner BlackRock (BLK), which had about $10 trillion in assets under management at the end of last year — before 2022’s big drop in stocks and cryptos — may also be helping boost investor sentiment for Coinbase.
Coinbase executives Brett Tejpaul and Greg Tusar said in an August 4 blog post that the partnership will allow BlackRock’s institutional investors to trade bitcoin through the platform’s Coinbase Prime service.
“Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets,” Joseph Chalom, BlackRock’s global head of strategic ecosystem partnerships, said in the blog post.
The Coinbase executives hailed the news as “an exciting milestone” for the trading platform, adding that “we are honored to partner with an industry leader and look forward to furthering Coinbase’s goal of providing greater access and transparency to crypto.”
Despite this year’s plunge in crypto prices, many major financial firms still believe they need an active presence in the bitcoin market. So the partnership with BlackRock, the world’s largest asset manager, provides some much needed validation for Coinbase.
But it may be premature to say that the worst is over for the company. Crypto prices continue to fluctuate wildly, and that will continue to hurt revenue for Coinbase.
In June, the company announced plans to lay off nearly 20% of its staff, with CEO Brian Armstrong warning of a looming recession and the possibility of a “crypto winter” that could “last for an extended period.”
There are other worries as well. The Securities and Exchange Commission is looking into whether Coinbase is illegally allowing customers to trade some non-registered crypto securities on its platform. Coinbase has flatly denied this. The SEC also recently charged a former Coinbase product manager with insider trading.
And one of Coinbase’s biggest bulls has also grown wary. Tech stock guru Cathie Wood of Ark Invest recently trimmed Ark’s stake in Coinbase in several of the firm’s ETFs.