The extreme market volatility that once attracted speculative investors is decreasing in the cryptocurrency ecosystem. These changes have major implications for exchanges like Coinbase (COIN) that have thrived during periods of high volatility.
Despite beating its financial forecasts for the first quarter of 2024, Coinbase reported trading volume of $56 billion. This figure stands in stark contrast to the record high of $177 billion at the end of 2021.
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The average volatility of digital currencies has decreased from about 79% in 2021 to 57% this year, according to a Bloomberg report citing research from CCData. This decline means the market has stabilized, making it less attractive for high-risk traders, but allowing for more sustainable growth.
Coinbase CFO Alesia Haas highlighted this new stability at the JPMorgan conference.
“Volatility looks much more mature in this cycle than it did in 2021. Bitcoin’s volatility, Ethereum’s volatility is starting to show up on the grid,” Haas said.
Moreover, spot Bitcoin exchange-traded funds (ETFs) have brought more structured market inflows. As a result, Bitcoin reached an all-time high of approximately $73,000 in March 2024.
As a result, Bobby Zagotta, CEO of Bitstamp USA, suggested that the market remains somewhat volatile. However, he believes the magnitude of price fluctuations will be less extreme than in past cycles.
“Markets today are more mature and less prone to sudden fluctuations. There will still be a lot of volatility and there will still be upward momentum in Bitcoin and cryptocurrency prices, but I don’t think there will be as explosive ups and downs as previous cycles,” Zagotta said.
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This leaves Coinbase’s financial position strong, but still lagging its 2021 peak. The company’s future performance is closely tied to the duration of the current bull market and its ability to maintain significant market share, which has declined slightly since early 2023.
In addition to these internal issues, Coinbase has faced technical issues this year, including several outages. These incidents resulted in users being temporarily banned from trading at a critical time, highlighting the need for improved platform stability to maintain trader confidence.
Financially, Coinbase is diversifying its revenue streams. The company has established itself as the leading custodian of the U.S. spot Bitcoin ETF and is poised to take a similar position for the Ethereum ETF in the future.
Participation in the Base network is expected to be a significant revenue stream. According to Oppenheimer & Co. analyst Owen Lau, such diversification will lead to more stable and predictable profits.
“Coinbase returns could become more predictable. This means they can demand higher revenue multiples,” Lau said.
From a technical analysis perspective, COIN stock has seen notable activity this year. After reaching a local high of $283 on March 25, 2024, the stock entered a consolidation phase, fluctuating between $236 and $197. On May 24, COIN stock broke out of this range, turning the $236 level from resistance to support.
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COIN stock is currently testing this new support level. If it holds, there could be a potential rally of up to 20% as the stock aims to retest its March highs.
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