Coinbase shares are currently 177 per cent higher year-to-date

Coinbase traders are likely in for a better-than-expected earnings report for Q2, experts forecast, but regulatory risks and the risk of lower trading volumes, continue to persist.

FactSet consensus projections call for Coinbase’s revenue to drop from the earlier quarter, to $629 million from $773 million. Trading volume for the period ending June 30 is expected to have decreased to $114 billion from the first quarter when it was $145 billion. And earnings per share are anticipated to be a loss of $0.76, compared to a loss of $0.34 in Q1.

We expect adjusted EBITDA to come in well ahead of consensus, Barclays analysts wrote in a report Tuesday. In a previous note from July 13, the analysts stated they had been impressed by the strength of retail trading activity on the exchange. Though, they noted that the upside remaining over the longer term could reduce.

Coinbase shares are presently 177 per cent higher YTD, which is thanks to two factors, the UK bank said. One is the U.S. District Court of the Southern District of New York judge’s ruling that the sale of Ripple’s XRP tokens on exchanges and through algorithms didn’t constitute investment contracts, which strengthens Coinbase’s claim that many of the tokens it sells are not securities.

And the second is multiple applications from financial institutions for spot bitcoin ETF, which could hugely extend the availability of and demand for bitcoin.

Nevertheless, the rally could be short-lived. Berenberg analyst Mark Palmer cautioned in a note Tuesday that another judge from the same district rejected the ruling, contending that there should be no difference between institutional sales and sales to retail investors on crypto exchanges. In a separate note on Monday, Palmer also stated that the basis of coinbase’s recent rally was shaky and that the reality of the firm’s still-precarious situation may come back into focus with the release of its second quarter report.

Palmer also cautioned about risks coming from the USDC stablecoin, which generated $199 million, or 27 per cent of Coinbase’s net revenue from interest income in the first quarter.

The market capitalisation of USDC has continued its steady drop, he added. Now, USDC, and Coinbase’s revenue derived from it, could be facing another threat. This is due to concerns raised by the U.S. Fed and other regulators regarding stablecoins.

Another area of concern is Coinbase’s trading volume, which stayed low in July, Barclays noted, citing data from The Block which showed that exchange volume in July was 5 per cent lower MoM.