Coinbase (NASDAQ: COIN) started 2026 losing nearly $400 million, just as a new threat to its U.S. digital asset dominance could be coming from the most unexpected direction.
The Coinbase digital asset exchange recorded a net loss of $394.1 million in the first three months of 2026, a modest improvement over the $666.7 million loss in the final quarter of 2025. Overall revenue came in at $1.41 billion, down 21% from Q4 and 31% off the same period last year. It’s the lowest revenue total since Q324, and the net loss came despite the company’s expenses dipping 5% from Q4.
The nine-figure loss reflects the struggles the broader crypto sector has endured since token prices began tanking last October, but also the ever-shrinking discretionary income of Americans, who nowadays have more pressing financial demands than buying digital beanie babies.
Trading volume was $202 billion in Q1, half the total from one year prior. Consumer volume fell 54% year-on-year to $36 billion, while institutional volume fared only slightly better, sliding 48% to $166 billion.
Transaction revenue was down 40% year-on-year to $755.8 million. Consumer revenue fell 48% to $566.9 million, but institutional revenue bucked the downward trend by rising 37% to $135.7 million. Coinbase credited the institutional revenue boost to last year’s $2.9 billion acquisition of the Derebit derivatives platform.
Transaction revenue’s share of Coinbase’s overall pie fell nine points year-on-year to 56%. The decline is partly based on the public’s waning appetite for the utility-free memecoins Coinbase routinely lists and flogs to its users.
While the BTC token’s trading volume rose 13 points year-on-year to 40% of the total and the Ethereum network’s native token ETH saw its share rise eight points to 19%, Ripple Labs’ XRP slipped two points to 9%, and ‘other crypto assets’ (the aforementioned memecoins) fell eight points to 30%.
Tether’s USDT stablecoin saw its share of trading volume crater from 13% in Q125 to just 2% in this most recent quarter, vivid evidence of Coinbase’s favoritism for the USDC stablecoin issued by Tether rival Circle (NASDAQ: CRCL). (More on Coinbase’s USDC reliance below.)
Coinbase’s 8K filing with the Securities and Exchange Commission (SEC) shows that its monthly transacting users (MTUs)—a broadly defined category that extends to individuals receiving passive rewards but taking no direct action—totaled 8.2 million in Q1. That’s down sharply from 9.7 million in the same period last year.
Looking ahead to Q2, transaction revenue was just $215 million through May 5, setting the full quarter up for a serious fall unless things pick up dramatically. And there are some serious one-off expenses coming Coinbase’s way in Q2 (see ‘layoffs’ below).
Coinbase shares closed Thursday down 2.5% to $192.96 but slid another 6% in after-hours trading before regaining a little of that lost ground. The shares are down nearly 15% since the year began, and have mirrored the volatility in the wider crypto sector over the past 12 months, ranging from a low of $139 to a high of $445.
USDCoinbase dream team under threat
Turning to non-transaction revenue, Coinbase’s ‘subscription and services’ segment brought in $583.5 million, down 13.5% year-on-year. While the ‘blockchain rewards’ (aka ETH staking) part of this segment was nearly cut in half to $101.8 million (due to “price effects”), stablecoin revenue rose 11.4% to $300.4 million, more than one-fifth of the total revenue pie.
Coinbase’s relationship with USDC is complicated, as both Coinbase and Circle were originally part of the consortium that issued the stablecoin. Coinbase exited this consortium a few years back in exchange for 8.4 million Circle shares and a highly favorable scheme under which Coinbase receives half of nearly all USDC-based revenue, whether generated on the exchange or not. As such, Coinbase has a serious interest in promoting USDC adoption.
Coinbase said Q1 ended with $19 billion in USDC held across its platform, a new all-time high that represented roughly one-quarter of USDC’s total market cap at the time. Coinbase also claims to have “captured ~50% of all USDC economics” over the past year.
Base, the company’s USDC-friendly Ethereum layer-2 network, handled 62% of all stablecoin transaction volume in Q1, up from just 27% in Q425. Base also handled over 90% of agentic AI stablecoin volume, thanks in part to Coinbase’s role in developing the x402 agentic payments protocol.
There are significant uncertainties regarding Coinbase’s future ability to monetize USDC through stablecoin rewards. The digital asset market structure legislation (CLARITY Act) currently languishing in the U.S. Senate may impose limits on passive rewards, which would put a serious crimp in Coinbase’s revenue column.
Coinbase execs appear suspiciously okay with this, suggesting that the banking sector is right to continue pushing for more specific language that wouldn’t allow digital asset platforms to wiggle around these rickety regulatory fenceposts.
Right-sizing or AI-washing?
Coinbase CEO Brian Armstrong delivered a shocker on May 5 when he tweeted the contents of an email he’d sent to all staff. The email said Armstrong had “made the difficult decision to reduce the size of Coinbase by ~14%” (roughly 700 people).
Coinbase expects the purge to incur costs of $50-$60 million in restructuring expenses, “substantially all” of which will be booked in Q2. For the record, Coinbase said Thursday that it expects stock-based compensation for its top execs to hit $240 million in Q2. Call us cynical, but we suspect that decision probably wasn’t all that difficult.
Armstrong offered his thanks and gratitude to those being terminated in such a “sudden and harsh” manner and attempted to explain why they were being given the boot. Armstrong claimed that “two forces are converging at the same time,” specifically, the increasing capabilities of AI and the general unpredictability of the ‘crypto’ market.
On the latter front, Armstrong claimed Coinbase is “well-capitalized” and is “well-positioned to weather any storm.” However, “we’re currently in a down market and need to adjust our cost structure now so that we emerge from this period leaner, faster, and more efficient.”
As for AI, Armstrong says Coinbase engineers now “use AI to ship in days what used to take a team weeks … the pace of what’s possible with a small, focused team has changed dramatically, and it’s accelerating every day.”
The announcement was met with significant online scorn, including those who suggested that letting AI develop software on which the safety of users’ financial assets depends might not be the best idea. Armstrong pushed back on these critics, claiming that “all AI generated code has rigorous human reviews. No one is vibe coding directly to production. We’re increasing speed of shipping and innovation, while continuing to raise the bar on security.”
(In August 2024, Coinbase announced it was enlisting AI’s help in anticipating the traffic surges that were blamed for the exchange routinely going offline for lengthy stretches. This AI assist didn’t stop the platform from becoming inaccessible to users during moments of market turmoil. Here’s hoping the AI vibes are better this time around.)
Armstrong embraced the safety of the CEO herd, claiming that we are at “an inflection point, not just for Coinbase, but for every company. The biggest risk now is not taking action. We are adjusting early and deliberately to rebuild Coinbase to be lean, fast, and AI-native. We need to return to the speed and focus of our startup founding, with AI at our core.”
The same day that Armstrong announced the Coinbase cull, reports emerged that PayPal (NASDAQ: PYPL) had decided to cut 20% of its staff (~4,760 positions) over the next couple of years, saving $1.5 billion in the process. PayPal said it was “prioritizing AI-driven cost reductions” as it embarked on the strategic reorganization the company announced last month.
In February, Bitcoin-friendly digital payments firm Block (NASDAQ: XYZ) fired nearly half (4,000) of its staff based on founder Jack Dorsey’s view that AI was “enabling a new way of working.” That same month, the struggling Gemini (NASDAQ: GEMI) exchange announced it was shedding over one-quarter of its staff thanks to “rapid breakthroughs in AI.” In March, Crypto.com said it was turfing 12% of its employees whose roles, CEO Kris Marszalek claimed, “do not adapt in our world.” Algorand, Messari, 0G Labs, and PIP Labs have all taken similar cost-cutting steps this year.
Critics have accused all of these companies of ‘AI-washing,’ aka blaming AI for a variety of corporate missteps, like over-hiring, poor capex decisions, and eluding the narrative that their business sucks.
Prediction market off to promising start, but will courts pull the plug?
Coinbase said its new prediction market offering generated over $100 million in annualized revenue since its launch earlier this year. But Coinbase’s new cash cow was recently sued by New York’s Attorney General for offering illegal gambling services to state residents.
While Coinbase and other prediction markets claim to be offering some beneficial ‘wisdom of crowds’ service to society, multiple studies show that a handful of insiders are making bank while the rest of the unwashed masses simply provide the funding to keep this boat afloat. Other critics have slammed prediction markets’ reliance on sporting events to provide the bulk of liquidity.
In March, Coinbase users who logged into the app were immediately presented with a screen urging them to ‘Trade the Madness,’ which is the annual NCAA basketball tournament. As one critic put it, the message Coinbase appeared to be sending was that “financial speculation and gambling is the way out of a dreary life when, in fact, for 99% of people it will only make their life worse.”
Other critics claimed they were being inundated with push notifications from Coinbase about the tournament and not-so-subtle nudges to place bets on the games. Another critic noted that “amidst arguably the worst collapse in trust in this industry’s history, the largest American [centralized exchange] has completely pivoted to trying to get their customer base hooked on sports gambling, so that they can extract even more exorbitant fees.”
Armstrong eventually weighed in, tweeting his claim that “there was a bug on targeting for these push notifications – getting fixed now.” But Armstrong said he preferred that customers “adjust the experience to their preferences” rather than having the exchange “apply a heavy hand and dictate what customers should trade or should not trade … too paternalistic, and anti free market.”
Predictably (pun intended), not everyone was pleased with this response, so do enjoy these highly profane responses here, here, and here.
Threat from JPM low fees
Coinbase is by far the largest U.S.-facing exchange, but its grip on this domestic market could be coming under serious threat from what some might consider an unexpected corner. It could also prove seriously ironic, given that Coinbase has led the push to integrate digital assets into the mainstream financial sector.
This week, Bloomberg reported that Wall Street giant Morgan Stanley (NASDAQ: MS) was piloting digital asset trading on its E*Trade platform. Assuming all goes well, the pilot is expected to be expanded to all of E*Trade’s 8.6 million clients later this year.
Ominously, Morgan Stanley is charging clients 50 basis points (bps) on the dollar value of each digital asset transaction, significantly less than Coinbase or its U.S.-facing peers. It’s also lower than the 75bps that MS rival Schwab is charging, and Bloomberg’s Eric Balchunas was quick to predict that Schwab “likely won’t let this stand.”
Balchunas added that normies who want to play in the crypto sandbox already enjoy pseudo-exposure to major tokens like BTC, ETH, and more via exchange-traded funds (ETFs) offered by nearly all the Wall Street players for even lower fees. But if these same tradfi giants start offering easy trading access to second-tier tokens (or even memecoins), Balchunas said: “crypto exchanges should be scared.”
Asked about the challenge on the Q1 earnings call, Coinbase CFO Alesia Haas claimed that “our clients are not choosing us because we’re the cheapest … they’re choosing us today because we’re the most trusted, we’re the easiest to use, the most crypto stored … We are not keeping our eye off the ball of the risk of fee compression, but it’s not what we’re seeing in the near term business.”
But as another critic pointed out, Coinbase “spent so much money [tens of millions to political action committees like Fairshake and millions more via direct contributions to President Trump’s campaigns and pet projects] bribing politicians to merge crypto into tradfi to keep bags pumped… they’ve successfully lobbied their own casino into becoming obsolete.” Oops.
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