Here’s Why Coinbase Stock May Dive Ahead of Q2 Earnings

Coinbase stock has slumped this year, underperforming the broader stock market as the crypto winter has accelerated. COIN was trading at $153 on Friday, down by 42% from its highest point this year. This article explores some of the top reasons why the stock may drop further ahead of its earnings.

Coinbase Stock to Drop Amid the Crypto Winter

The main reason why COIN stock will retreat in the coming weeks is that the crypto winter has escalated, with Bitcoin and other altcoins being in a bear market.

Bitcoin dropped for the third consecutive day, reaching $62,790, down by 25% from its highest point in May. Other altcoins have slumped, with the market capitalization of all coins falling to $2.1 trillion.

Crypto exchanges like Coinbase and Binance normally struggle when there is a crypto winter because of the falling volume. This situation explains why analysts expect the company’s revenues to remain under pressure for a while.

Yahoo Finance data shows that the company’s revenue will come in at $1.32 billion, down by 11.60% from the same period last year. With cryptocurrencies being under pressure, there are signs that the weakness will continue this year. In this case, analysts expect the third-quarter revenue to be $1.51 billion, down by 20% YoY.

Coinbase has moved to offset the weakness in the crypto industry by launching several products, including tokenized stocks and a prediction marketplace. Its goal is to ensure that these solutions will transform it into an everything trading application.

While this is a good move, there are concerns that it will take time to start generating substantial revenue. Also, it is now competing with other companies like Robinhood and Kraken that are offering the same solutions.

USDC Market Cap Continues Falling

Meanwhile, a key business that provides Coinbase with substantial stability is showing signs of weakness. Data shows that the amount of USDC stablecoin in circulation has continued falling this month. The valuation has dropped from almost $80 billion a few months ago to the current $73 billion.

This slowdown is important because of the relationship that exists between Coinbase and Circle Internet. Coinbase is a top USDC distributor, allowing it to retain all the interest it earns.

Its stablecoin business is highly profitable, generating $305 million in revenue in the first quarter. This business accounted for a substantial share of its total $1.3 billion in revenue. Therefore, the falling USDC market cap means that the company will make less amount of money in this division.

At the same time, other stable parts of Coinbase’s business are also struggling. One of these is the ETF custody business, which has become important as investors have embraced these assets. Coinbase is the world’s largest custodian of these funds.

Data shows that Bitcoin and Ethereum ETFs have shed substantial assets this year. This means that the company is making less fees from companies like Grayscale and BlackRock.

COIN Stock Has Formed an Inverted Cup and Handle Pattern

Technicals also suggest that the COIN stock is at risk of further downside in the near term. It has formed an inverted cup-and-handle pattern and is now in the handle section. It is approaching the lower side of this pattern.

The stock has also remained below the 50-day Exponential Moving Average (EMA). It has also moved below the descending trendline that links the highest swing in December last year.

Therefore, the stock will likely have a bearish breakout, with the next key target being at $141. A move below that price will point to more downside, potentially to $100. The bearish outlook will become invalid if it jumps above the descending trendline.

Coinbase faced pressure from weaker crypto prices, slowing trading activity, and softer stablecoin growth ahead of earnings. While the company continued expanding into new products, investors were likely to focus on transaction revenue, stablecoin income, and forward guidance. Technically, a confirmed breakdown below support could strengthen the bearish case, while a recovery above the descending trendline would weaken it.