Coinbase Earns Back $700 Million, but Trading Recovery Still Falls Short

Author: SoSoValue Research



Coinbase returned to profitability in the third quarter, yet revenue remains in contraction. In Q3 2026, total revenue was $1.216 billion, down 35% year-over-year and essentially flat quarter-over-quarter; net income was $719 million, ending three consecutive quarters of losses, but included $715 million in gains on crypto asset investments. Excluding investment gains and losses and related tax items, adjusted net income was $77.7 million, down 82% year-over-year.

The earnings report reveals two different growth curves: the traditional crypto trading business remains weighed down by low volumes, while USDC, prediction markets, and subscription services are beginning to provide more support. Coinbase is reducing its reliance on spot trading, but the new businesses are currently mainly helping to stabilize revenue—there is still a gap before they can drive a reacceleration of overall growth.

Profitability Turns Positive, but Operational Recovery Lags Book Performance

In the third quarter, Coinbase's adjusted EBITDA was $333 million, up 60% quarter-over-quarter and positive for the 15th consecutive quarter; however, it was still down 58% year-over-year. Adjusted net income also swung from a loss of $105 million in the second quarter to a profit of $77.7 million, indicating genuine operational improvement.

The improvement came mainly from expense control. Third-quarter total operating expenses were $1.154 billion, down 17% year-over-year and 13% quarter-over-quarter; adjusted expenses were $975 million, down 6% quarter-over-quarter and below the prior guidance range of $980 million to $1.08 billion. With revenue showing almost no quarter-over-quarter growth, lower costs provided important support for the profit rebound.

However, the $719 million GAAP net income was clearly driven by asset prices. In addition to $715 million in crypto asset investment gains, the quarter also included approximately $39.2 million in other investment gains. Portfolio appreciation can strengthen the balance sheet, but it also causes reported profits to continue fluctuating with the crypto market. Valuation judgments need to rely more on trading revenue, stablecoin net revenue, and sustainable expense levels.

The company still has a strong liquidity buffer. Cash and cash equivalents at quarter-end were $8.604 billion, with approximately $2 billion remaining in share repurchase authorization. However, operating cash flow for the first three quarters was $786 million, down from $1.803 billion in the same period last year; stock-based compensation expense for the same period reached $719 million. Cash flow remains positive, but the earnings recovery has not yet translated into equally strong cash generation capability.

Trading Share Continues to Rise, but Industry Contraction Still Outweighs Competitive Advantages

Third-quarter trading revenue was $590 million, down approximately 44% year-over-year and 1% quarter-over-quarter. Of this, consumer trading revenue was approximately $450 million, essentially flat quarter-over-quarter; institutional trading revenue was approximately $92 million, down 8% quarter-over-quarter.

During the same period, Coinbase's crypto spot trading volume fell from $146.4 billion in the second quarter to $134.5 billion, with consumer spot trading volume down approximately 9%; crypto derivatives trading volume also declined approximately 6% quarter-over-quarter. With trading volumes shrinking across major businesses, the ability to keep revenue relatively stable demonstrates the buffering effect of new products.

The company's market share of crypto trading volume rose to 10.7%, up from 10.3% last quarter and 5.6% in the same period last year, marking the fourth consecutive quarterly increase. This metric covers spot, crypto derivatives, and stablecoin-related activity, reflecting competitive position in overall trading scale. Fee rates vary significantly across products, so the revenue contribution of share gains depends on the trading mix.

Coinbase is gaining more share in a market with weak trading activity, while industry contraction continues to suppress revenue growth.

Asset custody shows a similar divergence. Platform assets reached $377 billion at quarter-end, up significantly from $246 billion in the second quarter, with the share of total crypto market capitalization returning to 12.5%. Asset inflows and price appreciation help custody, staking, and financing businesses, but an increase in long-term held assets has relatively limited impact on high-frequency trading fees.

Management said on the earnings call that Bitcoin ETF inflows were notable this quarter, while increased institutional participation was accompanied by declining Bitcoin volatility. For Coinbase, institutionalization can expand the asset base, but may make revenue more dependent on low-fee trading, custody, and financing services.

USDC Carries Revenue, but Growth Comes at a Cost

Subscription and services revenue reached $570 million in the third quarter, up 3% quarter-over-quarter and accounting for 49% of net revenue; it was still down 20% year-over-year. This segment accounts for nearly half of revenue and helps cushion trading cycle shocks, but stablecoin, staking, and financing businesses within it remain affected by interest rates and coin prices.

Stablecoin was the most important support item this quarter. Stablecoin revenue was $307 million, up 5% quarter-over-quarter and accounting for more than half of subscription and services revenue. Average USDC balances on Coinbase products rose to $22 billion, up 49% year-over-year, setting a new high for the 14th consecutive quarter.

At the same time, average total USDC market capitalization fell from $77 billion last quarter to $73 billion. The counter-trend growth in on-platform balances shows that Coinbase's distribution, product integration, and on-chain partnerships can attract more USDC deposits; among these, the Hyperliquid-related USDC balances introduced in June contributed a full quarter in Q3.

This also explains the two-way impact of interest rates on Coinbase. Higher rates can increase stablecoin reserve-related income, but may also suppress risk appetite and trading activity; if rates decline in the future, trading demand may gain support, while yield per unit of stablecoin balance would face pressure. Business diversification improves the revenue structure but also increases the offsetting effects among different macro variables.

Stablecoin growth is also accompanied by incentive spending. The company expects increased USDC rewards and marketing investment in the fourth quarter. Therefore, when evaluating this business, it is necessary to observe balance growth, revenue growth, and reward costs simultaneously to judge the profit contribution from new capital deposits.

On the earnings call, management also acknowledged that Coinbase and Circle compete on stablecoin payment infrastructure, while both still benefit from USDC's expansion. The partnership provides economic benefits, but payment entry points and customer relationships require continuous investment to compete for.

Prediction Markets Begin Contributing Revenue, but Profit Potential Remains to Be Unlocked

Prediction markets are the clearest new growth driver this quarter. In the third quarter, the business's quarterly revenue annualized to more than $200 million, with average daily trading users up more than 60% quarter-over-quarter. The $200 million here is the annualized scale of quarterly revenue, corresponding to quarterly revenue of more than $50 million.

This scale is not yet sufficient to fill the year-over-year gap in the traditional trading business, but it is already able to influence quarterly revenue performance. Third-quarter consumer spot trading volume fell approximately 9%, yet consumer trading revenue remained essentially flat, with prediction market growth playing a buffering role.

Business expansion is also beginning to move away from dependence on a single sports event cycle. The company disclosed that non-sports categories grew more strongly, and recurring contracts around themes such as crypto volatility help maintain trading activity between major events. Alignment with the needs of existing crypto users provides a foundation for product cross-selling.

However, prediction market revenue growth is accompanied by external exchange fees. Management stated in the earnings presentation that the company has received CFTC approval to list its own prediction market contracts and plans to improve economics through self-built clearing and infrastructure. As the business scales, how much revenue it can retain will determine its actual contribution to profit.

The commercial logic of the "Everything Exchange" is thus becoming clearer: allowing users to switch among spot, derivatives, prediction markets, and other assets, increasing usage frequency within the same account. Coinbase One paid subscribers grew 24% year-over-year, also supporting user retention. But richer products and membership benefits need to be covered by higher customer revenue and longer retention cycles to offset acquisition and incentive costs.

Q4 Revenue Shows Moderate Recovery, but Expenses Rise First

The fourth-quarter guidance imposes new constraints on short-term profitability.

The company expects subscription and services revenue of $550 million to $630 million, with a midpoint of $590 million, up approximately 3.5% from the third quarter but below the FactSet consensus of approximately $611 million. This means stablecoin, staking, and financing businesses are expected to continue improving, but growth momentum still falls short of market expectations.

As of October 25, fourth-quarter cumulative trading revenue was approximately $165 million. The company did not provide full-quarter trading revenue guidance; subsequent performance will still depend on trading volume, volatility, and product mix.

The expense rebound is clearer. According to the earnings presentation materials, fourth-quarter adjusted expenses are expected to be $1.007 billion to $1.157 billion, with a midpoint of $1.082 billion, up approximately 11% from the third quarter. By comparison, the midpoint of subscription and services revenue guidance increases by only about $20 million.

Management explained that the expense increase mainly comes from marketing investment in USDC rewards, prediction markets, and other products, as well as some third-quarter professional services expenses deferred to the fourth quarter. From this perspective, the third-quarter cost decline included both sustainable personnel expense improvements and timing-related effects of certain expenditures.

The full-year adjusted expense guidance was further lowered to $4.15 billion to $4.3 billion, showing the company still maintains cost discipline. But for the fourth quarter, if trading revenue fails to accelerate noticeably, the expense rebound may limit further profit expansion.

Valuation Re-rating Still Requires Revenue and Cash Flow Delivery

Coinbase's long-term value is extending from trading fees to stablecoin distribution, asset custody, derivatives, financing, and on-chain infrastructure. The third quarter proved that these investments can already cushion the decline in traditional businesses.

AI finance offers a longer-term growth space. Management mentioned on the earnings call that agent trading volume is growing rapidly, but is currently still small relative to the overall trading business. Its value depends on whether it can generate sustained trading, payment, and financing demand in the future; at this stage, its contribution to profitability remains limited.

From a valuation perspective, single-quarter investment gains tend to amplify the magnitude of earnings improvement, while adjusted EBITDA excludes relatively large stock-based compensation. The market needs to see more sustainable operating results: trading share converting into revenue growth, USDC expansion covering incentive costs, prediction markets improving profit retention, and cash flow improvement supporting buybacks and reinvestment.

Coinbase has demonstrated greater business resilience than in the past, but the third quarter was still a revenue-stabilizing, cost-driven earnings recovery. The key to the next stage is whether new businesses can drive profit growth while expenses rise again, enabling diversification to evolve from a tool for withstanding cycles into a source of growth.