The crypto industry has found new ways to grow. Making money from them is another story

Cryptocurrency companies have spent years trying to make money from more than just people buying and selling bitcoin . Their latest earnings show how hard that can be.

Coinbase COIN$135.16 and Robinhood HOOD$79.73 reported weaker crypto trading revenue last week. Circle CRCL$66.87, the company behind the USDC stablecoin, reported an 8% drop in reserve income, little change in USDC supply from a year earlier and a 5% cut to its workforce in its latest earnings statement on Wednesday. Shares of all three companies are down significantly over the past 5 days led by Circle which fell 11%.

The results come as crypto prices slide following Tuesday's midterm elections, adding to the pressure on an industry already dealing with a slowdown in trading.

Coinbase and Robinhood have moved into other financial services, while Circle has bet on stablecoins becoming a common way to move money. But the latest numbers show that adding products doesn't always mean adding dependable revenue.

StoneX analyst Mark Palmer said Coinbase's third-quarter results "should help to dispel the notion that the company is simply a leveraged bet on crypto trading volumes."

Barclays analyst Benjamin Budish took a less upbeat view, warning that Coinbase's reliance on spot crypto trading "remains a key challenge" despite its growing range of products.

The trading problem

Coinbase has expanded into custody, stablecoins, lending and prediction markets. Robinhood has pushed beyond its roots as a stock-trading app into retirement accounts, banking products and other financial services. Those efforts have given both companies more ways to make money. They haven't made crypto trading any less cyclical.

Coinbase's third-quarter transaction revenue fell 23% from a year earlier to $590 million. Consumer spot trading volume dropped 9% from the previous quarter, while institutional transaction revenue fell 8%.

Yet Coinbase held total revenue near $1.22 billion and increased adjusted EBITDA by 60% from the previous quarter to $333 million, helped by lower expenses and growth in newer products.

"The crypto market's cyclical trough is doing what troughs do, revealing which businesses have built something durable," Palmer wrote in an Oct. 30 note.

He points to record USDC balances and prediction markets that now generate more than $200 million in annualized revenue.

But the earnings improvement wasn't as strong as it first appeared. Clear Street's Owen Lau said the earnings beat came from lower costs, not stronger trading, while Barclays cut its price target to $120 from $149, citing a weak fourth-quarter outlook.

Oppenheimer's Rayna Kumar, conversely, raised her price target to $207 on growth in stablecoins and prediction markets. But Compass Point's Ed Engel cautioned that prediction markets, while growing, carry lower profit margins.

Stablecoin squeeze

Circle doesn't need customers to trade often to generate most of its income. It earns interest on the cash and Treasury securities backing USDC, its dollar-pegged stablecoin, but that leaves it vulnerable to interest rates.

Reserve income fell 8% from a year earlier to $658 million as lower rates reduced returns. USDC supply stood at $73.9 billion at the end of September, little changed from a year earlier.

Its headline results looked stronger, with revenue rising 17% to $865 million. But $182 million of that revenue came from presales of tokens for Arc, Circle's new blockchain. Without those sales, revenue would have fallen about 8% from a year earlier.

Coinbase's revenue from USDC held on its platform rose 16% from the previous quarter, helped by a record $22 billion in average balances, Lau highlighted. But the rewards Coinbase pays to attract and retain those balances rose 9%. After accounting for rewards, Coinbase's stablecoin revenue grew just 3% from the previous quarter and fell about 16% from a year earlier.

"Stablecoins remain the most durable franchise in the model, but each marginal USDC dollar arrives at a lower margin," Lau wrote.

Growing stablecoin use doesn't guarantee that either company keeps more of the money generated by it.

Sources of growth

There are signs that crypto's newer businesses are gaining ground.

Circle said USDC transaction volume rose 49% from a year earlier to $13.9 trillion. Its payments network reached $41.3 billion in annualized volume, while the number of wallets holding more than $10 in USDC increased 16%.

Prediction markets have become a source of growth at Coinbase. Daily users of the product rose more than 60% from the previous quarter, and prediction markets and derivatives now account for about a quarter of transaction revenue.

Palmer said roughly 60% of Coinbase's net revenue now comes from activity that is either recurring or not directly tied to spot crypto trading.

Still, newer products bring their own questions about margins and competition.

Clear Street estimates Coinbase keeps about 1.5 cents on each prediction market contract it routes through Kalshi. Handling those contracts through its own clearing business could raise that to about 2 cents, though the firm has yet to establish when it will begin doing so.

Payments, while growing, remain a small contributor to Coinbase's revenue, with Clear Street noting that the businesses had yet to produce material revenue.

Coinbase, Robinhood and Circle are finding new ways to attract customers, but making money from them remains a challenge. Circle is seeing more payment activity and Coinbase's prediction markets are growing. Neither has escaped the pressures of a weak crypto market.