Coinbase’s Earnings Miss and Deribit Deal Spark Mixed Reactions from Wall Street Analysts

Coinbase (COIN) is under mixed scrutiny from Wall Street after the company missed earnings expectations for Q1 and announced its $2.9 billion acquisition of crypto derivatives exchange Deribit. While some analysts have downgraded their forecasts, others remain optimistic about the exchange’s long-term strategy.

“Q1 results fell short of expectations, with guidance for subscription and service revenues and April transaction volumes reflecting softer crypto market conditions and changes in rebates/mix,” said Benjamin Buddish from Barclays, who kept an “equal weight” rating. “That said, Coinbase gained notable market share in both spot and futures trading, and we remain optimistic about its long-term outlook.”

In the first quarter, Coinbase’s revenue fell by 12% quarter-over-quarter to $2.03 billion, below analysts’ estimates. Transaction revenue took the biggest hit, dropping almost 19% to $1.3 billion. This sparked concern over the near-term trajectory, prompting firms like Keefe, Bruyette & Woods and JPMorgan to lower second-quarter and full-year revenue estimates, citing lower fee rates and reduced institutional activity.

Retail trading activity remained stable, but institutional revenue declined. JPMorgan pointed out a 30% drop in institutional volume compared to the previous quarter, as well as a decline in institutional fees from 4.1 to 3.1 basis points, largely due to rebates and increased high-frequency trading.

Despite these challenges, Coinbase’s $2.9 billion acquisition of Deribit — the leading crypto derivatives exchange — stands out as a bold move for the future of derivatives markets. The deal, expected to close by year-end, received a positive reception from analysts such as Bernstein, which issued an outperform rating, highlighting Deribit’s $1.2 trillion in annual volume and $30 billion in open interest. Canaccord Genuity also gave Coinbase a buy rating, noting the acquisition enhances Coinbase’s international presence and positions it well for eventual U.S. regulatory approval of crypto options.

Beyond trading, Coinbase is finding growth in other areas. Subscription and services revenue rose 9% to $698 million, bolstered by a surge in stablecoin adoption. USDC balances on Coinbase grew by 50%, reaching $12.3 billion, while off-platform USDC balances jumped 39% to $42 billion. Canaccord also noted that average balances per user have tripled since June 2023, signaling strong growth in Coinbase’s non-transactional revenue streams.

Another significant aspect of Coinbase’s growth strategy is the expansion of its “Coinbase as a Service” offering, which provides white-label infrastructure to institutions entering the crypto space. Analysts at Canaccord believe this model will be a key revenue driver, helping to mitigate the impact of trading revenue volatility while further solidifying Coinbase’s position as a market leader.

“We are seeing more interest from both TradFi and crypto-native firms in leveraging a ‘buy vs. build’ strategy as the industry develops,” said Canaccord analysts. “Revenue from this type of infrastructure service would help smooth out quarterly revenue fluctuations and reinforce Coinbase’s dominant role in the ecosystem.”

However, macroeconomic challenges continue to weigh on sentiment. Analysts at Oppenheimer (outperform) and Barclays pointed to weak market conditions, tariff-related risks, and the broader market sentiment that led to lower trading volumes in April and May. The recent setback in stablecoin regulatory developments, with the Senate blocking the GENIUS Act, also added to the uncertainty. Still, JPMorgan remains hopeful, believing that regulatory progress will resume before the August recess.

Despite facing short-term pressures, Coinbase remains firmly positioned as a key player in the digital asset space. While near-term trading volumes and fees may be under pressure, many analysts remain confident that the exchange’s expanding product suite, dominant U.S. market position, and strategic acquisitions like Deribit will enable it to thrive in the long run.

As Canaccord summed up, Coinbase is still the “gold standard” for both institutional and retail participation in the digital asset market, even as it navigates the volatility of the current market conditions.

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