Coinbase released their Q2 shareholder letter yesterday and held their earnings call after markets closed, emphasizing three areas – operating efficiency, product development, and leadership in seeking U.S. regulatory clarity.
The first two highlight efforts taken across the industry to reduce costs and increase cash flows, and to use lean times to build infrastructure for the next likely non-speculative phase of crypto: “The next 10 years in crypto,” CEO Brian Armstrong stated on the call, “will be primarily about non-trading use cases”. Coinbase has bragging points on both fronts, showing strong cash flows and a second consecutive quarter of positive “adjusted” EBITDA (adjustments include backing one-time items such as severance costs following 30% staffing costs, and stock-based comp expenses magnified by recent stock performance), while also launching new platforms such as their derivatives exchange outside the US and Base, and their on-chain layer 2 solution.
But the third is a mantle uniquely thrust upon them and which they have embraced, most recently with a motion to dismiss the SEC’s action filed this morning. And in addition to the high-profile court battle, Coinbase has launched a “stand with crypto” NFT campaign to promote and evince solidarity within the industry, and has continued advocacy in Congress and elsewhere for clear and sensible rules. The legal case seemed more clear after the Ripple ruling, but on Monday Judge Rakoff, also of the S.D.N.Y, muddied the waters with an order denying summary judgment in the SEC action against Terraform Labs, and explicitly rejecting the Ripple ruling’s attention to the manner of sale, instead focusing on a “reasonable investor” standard that does not distinguish the identity of a seller.
It’s difficult to predict where this will all land, but $COIN seems prepared to take the high road. Throughout last night’s remarks, their tone was of a market leader championing the industry as well as their company. Each reference to Base also mentioned other Layer 2s such as Lightning and Optimism. This clearly implies that the success of Coinbase and its initiatives is inextricable from that of the industry in general. And on the legal front, CLO Paul Grewal even states that clarity itself is the goal, regardless of any particular outcome in their specific motion or case.
It’s tough to imagine celebrating a loss in court. Let’s hope they don’t need to.
