Robinhood Has a Crypto Trading Problem. It Might Soon Be Coinbase’s, Too.

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Trading platform

Robinhood

Markets experienced a stark decline in market activity in the last quarter as retail investors grew more cautious—especially when it came to cryptocurrencies. That could signal problems for digital-asset exchange

Coinbase

Global.

Robinhood

(ticker: HOOD) stock tumbled 8% on Friday, with

Coinbase

(COIN) slipping 0.5%. Both stocks have lost in the range of 50% of their market value so far in 2022 amid a slowdown in trading activity. The

S&P 500
index, by comparison, has retreated 11% over the same period.

Late Thursday, Robinhood posted a 45 cent-per-share loss on revenue of $299 million, while Wall Street expected a loss of 38 cents and $355 million of revenue.

“With the uncertainty in the market, our customers became more cautious with their portfolios, trading less frequently and in smaller amounts across all asset classes,” Vladimir Tenev, Robinhood’s co-founder, chair, and CEO said in the company’s earnings call. “Crypto activity in particular came down pretty significantly.”

“Pretty significantly” is right. Cryptocurrency trading volumes dropped to $54 million, down 39% from the same period a year ago and short of the $56 million expected among analysts polled by FactSet. 

Cryptos are a substantial part of Robinhood’s business—most recently making up almost a quarter of its transaction-based revenue—with digital assets being more popular than stock trading. Options remain king at the platform.

And Robinhood is only pushing further into cryptocurrencies. This month, the group extended wallet services to two million users in the U.S. this month. It acquired the U.K.-regulated digital-asset firm Ziglu as part of its international crypto expansion.

While Tenev said the company has seen some encouraging signs, like rising net deposit levels and lower churn, or customer loss, the crypto slowdown hurts. 

And it doesn’t bode well for Coinbase, which is due set to report earnings on May 10. The company said it had no comment in response to a query from Barron’s on the read-through from Robinhood’s results.

Analysts polled by FactSet have been steadily cutting their estimates for quarterly trading volumes at the exchange—from $390 billion at the beginning of the year to a current consensus of $320 billion. Volumes topped $547 billion in the final three months of 2021 and $335 billion in the first quarter of last year.

Even the most optimistic analysts are falling into line. At the start of 2022, the highest estimate for quarterly trading volumes was $668 billion; it stood at just $334 billion on Friday. The lowest estimate was $306 billion.

Wall Street still expects Coinbase to break even on the quarter and turn a profit this year. The consensus call is for earnings per share in the current quarter to be dead flat with a 17 cent profit for fiscal 2022.

But don’t be shocked if that doesn’t pan out.

JPMorgan Chase

analyst Kenneth Worthington slashed his estimates for first-quarter EPS to a 27-cent loss last week, lowering estimates for full-year EPS to an 84-cent loss. If Worthington is right, the market may be overestimating earnings sharply. The stock would likely react negatively if Coinbase swings to a wide loss.

Write to Jack Denton at [email protected]