From Coinbase to Strategy: Why Crypto Stocks Plummeted

Shares of major crypto companies fell sharply on Friday. Coinbase in particular was hit hard after disappointing quarterly figures. The US crypto exchange saw its turnover decline sharply, while a large part of the profit came from increases in the value of crypto investments.

Circle and Strategy also lost ground. The declines coincided with the unrest surrounding the billion-dollar hack at Binance.

The share of Coinbase fell by more than thirteen percent on Friday. The crypto exchange had announced its quarterly figures a day earlier, which showed that revenues were under considerable pressure.

Net sales declined 34 percent to $1.16 billion in the third quarter. Although Coinbase reported a net profit of $719 million at the same time, most of it turned out not to come from day-to-day operations.

Other large crypto companies were also hit on the stock market. Stablecoin issuer Circle lost more than nine percent, while the share of Bitcoin company Strategy fell about eight percent.

Bitcoin miner and data center company IREN surrendered more than ten percent. Figure Technology Solutions, which provides financial services through blockchain technology, lost about nine percent.

The sell-off coincided with major turmoil in the crypto market. On Thursday, crypto exchange Binance was hit by a cyber attack in which about 6.3 billion dollars in crypto coins were stolen.

The hack increased uncertainty in the sector. Exactly how the attack affected the share prices of Coinbase and other crypto companies is not clear.

Coinbase's quarterly figures show why investors had little reason to be enthusiastic despite the reported earnings.

Of the $719 million in net profit, about $715 million came from crypto asset appreciations owned by the company itself. So it's largely about profits on paper, not income from day-to-day trading.

Excluding these increases in value and other adjustments, an adjusted net profit of $78 million remained.

That contrasts sharply with the hundreds of millions of dollars in profits Coinbase seemed to have made at first glance. Together with the 34 percent drop in sales, this explains why investors reacted critically to the results.

Nevertheless, there were also positive developments. Coinbase is increasingly making money from prediction markets, where users can trade contracts on the outcome of future events.

These activities meanwhile provide the company with more than $200 million in revenue on an annual basis.

At Strategy, which is known for its huge Bitcoin (BTC) holdings, a similar difference was visible between reported profits and day-to-day operations.

The company reported a net profit of no less than $19.53 billion for the third quarter. That was largely due to a $20.91 billion appreciation in his Bitcoin holdings.

This means that the billion-dollar profit was mainly related to the Bitcoin price and not to the sale of products or services.

In the meantime, revenue from regular business activities fell by three percent to $125.4 million.

For investors, this remains an important distinction. Both Coinbase and Strategy reported a high net profit, but it was strongly influenced by the value of their crypto holdings. The figures on regular business activities show a less favourable picture.