Bitcoin is hovering around $73,000, nearing a new all-time high.
However, beneath the headline-grabbing rally, retail traders have largely remained on the sidelines, and this shift in trading dynamics has had a noticeable impact on Coinbase’s performance.
Coinbase reported weaker-than-expected third-quarter earnings, citing a decline in retail trading as a key factor. “There was a lot of negative sentiment, particularly this year, that probably discouraged traders,” said Adam Morgan McCarthy, an analyst at data firm Kaiko.
Despite the recent Bitcoin rally, Coinbase is predicting challenges ahead due to volatile crypto prices in October. The company estimates fourth-quarter revenue from its subscriptions and services division, a segment geared toward individual users, will be between $505 million and $580 million. This outlook is attributed to a 7% quarterly revenue decline in that division, along with lower interest rates and a 10% price drop in Ethereum in October compared to Q3 averages.
The cautious forecast and disappointing earnings report sent Coinbase’s shares down 9% on the New York exchange. According to Coinbase, low volatility and falling crypto prices have contributed to reduced retail participation on the platform. For Bitcoin in particular, volatility has significantly decreased by 40% from September 2020, according to data from Volmex, due to the influence of larger institutional investors and the arrival of spot crypto ETFs.
Morgan McCarthy noted that major sell-offs, such as the German government’s liquidations and crypto firms like Mt Gox going bankrupt, have further fueled the downtrend. The individual slowdown isn’t limited to Coinbase; PayPal also reported an 11% drop in crypto assets under management for its clients from Q2 to Q3, even as the price of Bitcoin rose.
Much of the current market activity is driven by institutional investors. CryptoQuant’s research reveals that demand for Bitcoin spot ETFs among large investors, known as “whales,” has been twice as high as individual interest over the past year.
However, there are some positive signs. “We’ve seen volumes come back a little bit,” Morgan McCarthy said, noting that Bitcoin volumes on Coinbase have been growing faster than on Binance, suggesting a resurgence of retail interest.
*This is not investment advice.