Coinbase has suffered a further drop in trading volumes even though the price of bitcoin has rallied, raising the stakes for the exchange as it tries to fend off a probe from the US markets regulator while launching its own legal action.
Monthly trading volume at the Nasdaq-listed group has fallen to $26.8bn so far in April, on track for its lowest level in 16 months, despite bitcoin surging and crypto traders shifting funds away from US banks.
Bitcoin and ether, the two most actively-traded crypto tokens, have risen 64 per cent and 50 per cent, respectively, this year as confidence has returned to a market badly shaken by a credit crisis in 2022.
The decline in activity on Coinbase deepens the squeeze on the San Francisco-based group, which relies on fees generated from trading volume for the bulk of its revenues. Shares in the group have fallen by 17 per cent in the past month as hopes have faded for a rebound after a poor 2022.
It is also the focus of a Securities and Exchange Commission investigation into possible securities laws violation, and last month received a Wells notice from the SEC, a notification that the regulator was considering potential enforcement action.
On Monday, Coinbase hit back with its own lawsuit against the SEC, asking a federal court to force the regulator to provide clearer guidance on the rules governing the crypto market.
“Market sentiment has certainly been affected by regulatory action in the US,” said Varun Paul, director of market infrastructure at blockchain platform Fireblocks, who previously spent 14 years at the Bank of England. “This legal uncertainty is likely adversely impacting crypto companies walking a regulatory tightrope.”
US regulatory authorities have been cracking down on illicit crypto activity this year with a host of lawsuits and settlements, prompting fears in the industry that crypto business will either leave the US, move offshore or migrate to alternative trading venues.
Coinbase management has also refused to rule out leaving the United States. The exchange reached a $100mn settlement with New York regulators for alleged anti money laundering failures in January.
Coinbase’s trading volumes in the past three months have also been lower than that of Uniswap, a little-known trading network that allows users to buy and sell digital assets directly with each other and bypass intermediaries that might charge fees, like an exchange.
Data analytics platform CCData found that Uniswap facilitated almost $69bn in trading volume in March, in comparison to Coinbase’s $49bn.
On social media earlier this month, Coinbase chief executive Brian Armstrong said the exchange also used Uniswap to fulfil some of its customer services. The DeFi platform has also facilitated more trading volume than several Coinbase rivals, including OKX and Kraken.
“I think all US centralised exchanges are losing or likely to lose to decentralised exchanges (or to foreign exchanges) due to the US regulatory crackdown,” said Nikolaos Panigirtzoglou, JPMorgan managing director focused on alternatives and digital assets. “This is likely to be a slow moving background trend rather than an abrupt shift.”
