Coinbase beats earnings estimates as analysts say regulation will ‘stifle’ innovation

Coinbase Global (NASDAQ: COIN) rebounded during the early trading hours on Aug.11 after it beat Wall Street forecasts for sales and revenues in the second quarter.

The cost to purchase one COIN share surged 4.7% to $282.34 at the New York opening bell. Later, bids for the COIN rose to as high as $294 before pulling back to its current price at $279.72.

Strong Q2 earnings for Coinbase 

Coinbase Global reported better-than-expected earnings in the second quarter of 2021and posted net revenue of $2.3 billion. That came to be 27% higher from the previous quarter and 1,042% up on a year-over-year basis.

Meanwhile, Coinbase's net income rose from $32 million to $1.6 billion in the same period, surpassing earnings of older and more traditional exchange operators, including the CME Group of Chicago, which earned $510 million and made $1.2 billion in revenue in Q3, and the Intercontinental Exchange, which reported a $1.3 billion in earnings.

The positive Coinbase results appeared as various entities continue to accumulate Bitcoin and the firm reported that its monthly transaction metric climbed to 8.1 million in Q2 from $6.1 million in Q1. Meanwhile, its trading volume rose to $462 billion from $335 billion in the same period.

In excerpts from the earnings call transcript, Coinbase CEO Brian Armstrong is heard discussing plans to expand Coinbase operations in the future.

Armstrong said:

"We're also focusing on international expansion, another form of decentralization, and just listing more and more assets. We want to be the Amazon of assets, list every asset out there in crypto that's legal."

In a letter to shareholders, Coinbase shared plans to explore decentralized finance (DeFi), adding that mainstream customers and institutions would soon be using the technology that cuts out traditional intermediaries from financial services, such as lending and borrowing.

Analysts still express caution

On the flip side, Coinbase warned that declining volatility in the cryptocurrency market that could impact its earnings in the year ahead.

The firm stated that its monthly transacting users (MTU)—retail traders that trade on exchanges at least once a month—surged 44% to 8.8 million at the end of Q2. Nevertheless, the net MTU declined in July and August, prompting Coinbase to lower its annual users estimate from 9 million to 8 million.

Declining trading volumes is another metric concerning analysts and the figure turned out to be weaker in July, mostly due to Bitcoin price slumping below $30,000.

According to Wedbush Securities analyst Moshe Katri, COIN's primary concerns are "mostly related to the regulatory environment."

Katri is likely referring to the US Senate approving a roughly $1 trillion infrastructure bill, a part of which requires digital asset brokers to report capital gains to the Internal Revenue Service. The bill aims to raise $28 billion in a decade by taxing the cryptocurrency sector but it failed to define who it considers "brokers."

Anne Fauvre, COO of data security firm Oasis Labs, said that the bill is too vague, fearing that it might end up covering even entities that are neither brokers nor hold any personal information of their customers. 

Fauvre told Cointelegraph, "Regulation should be seen as a way to create guardrails around industries" and "this bill would stifle the next 20 years of innovation in the US as we know it."

Adding to these regulati concerns, Coinbase CFO Alesia Haas told CNBC that U.S. regulators and lawmakers need to know that every cryptocurrency is not a security. Armstrong said that Coinbase is investing in a crypto advocacy group called the "Crypto Council for Innovation" to ensure "sensible regulation" in the US. 

COIN's technical outlook is positive

Katri iterated a 'Buy' rating for the Coinbase stock and suggested a rise to $300 in the next 12 months, which is a 3.03% upside estimate.

According to TipRanks, the average analyst consensus for COIN was also a 'Buy' with a $369.25 price target per share by next year.