Coinbase's Nightmare: $600 Million Loss Forecast for Q4

Crypto juggernaut Coinbase is expected to deliver a tough blow to investors with its Q4 report, revealing a staggering loss of nearly $600 million. This would be its fourth consecutive quarter of revenue decline.

This comes as CEO Brian Armstrong is locked in a fierce battle with U.S. regulators over the safety of crypto custody, staking, and stablecoins, creating a minefield of uncertainty that threatens to drain the company's coffers.

Coinbase's reliance on trading fees has been its Achilles' heel, forcing the company to explore new revenue streams in a bid to weather the regulatory storm.

Despite expectations for increased revenue in Q1, the crypto titan may need to cut costs given its expectation to lose no more than $500 million in adjusted earnings before taxes in 2022.

Nevertheless, Coinbase had an eye-popping $5 billion in cash and equivalents at the end of September, which should allow it to survive the crypto winter. 

Furthermore, increasing regulatory headwinds have left analysts wary, with regulators ramping up scrutiny on digital assets since the collapse of rival exchange FTX in November. Federal agencies have accelerated a crackdown on crypto companies, products, and services in recent weeks, which has exacerbated the uncertainty.

Despite the regulatory uncertainty, Compass Point analyst Chase White is optimistic about Coinbase's future. He told Barron’s that he sees the cryptocurrency exchange as being well-positioned to gain market share, especially among U.S. retail investors when the crypto bull market returns. 

On the other hand, J.P. Morgan analyst Kenneth B. Worthington is more cautious, citing regulation through enforcement as a risk to digital-focused businesses. Although Coinbase has been building subscription service businesses that are more stable and resilient to crypto market volatility, recent actions by the SEC put different pieces at risk.