Q1 net loss of $394.1 million, Coinbase can only hold onto Circle's coattails

Original by Odaily Planet Daily (@OdailyChina)

Author｜Golem (@web3_golem)

On May 8, Coinbase released its Q1 2026 earnings report. Coinbase CEO Brian Armstrong commented on the quarter during the earnings call, stating, "Despite the weakness in the crypto trading market, Coinbase has performed admirably within its control."

In the earnings presentation, Coinbase highlighted its Q1 achievements, such as its crypto trading market share increasing to 8.6%, a new all-time high; derivatives trading volume TTM (trailing twelve months) growing 169% year-over-year; the prediction market generating an annualized revenue of $100 million in March (just two months after launch); and 12 products achieving over $100 million in annual revenue.

However, no matter how impressive the presentation looked, it couldn't mask the bleak core financial data for Coinbase in Q1. The report showed that Coinbase's total revenue for Q1 2026 was $1.41 billion, down 31% year-over-year and 21% quarter-over-quarter, missing market expectations. The net loss was $394.1 million, marking Coinbase's second consecutive quarter of net losses (Odaily note: Q4 2025 net loss was $666.7 million).

As a result, Coinbase (NASDAQ: COIN) fell over 5% intraday on May 8, but by the close of trading today, COIN had recovered all its losses, closing at $201.16.

Is Weak Crypto Market the Sole Reason for Coinbase's Loss?

The post-earnings stock decline already reflected market concerns about Coinbase's short-term performance, which the company largely attributed to the weak crypto market. Since Q3 2025, Coinbase's revenue began to decline, and the timing aligns with the crypto market's transition from a bull to a bear cycle based on the overall quarterly revenue trend.

Coinbase Quarterly Revenue

But is market weakness the only reason for Coinbase's losses? What other potential issues can we uncover from the earnings report?

Some analysts believe Coinbase's Q1 net loss was impacted by impairment losses on its crypto asset holdings. The report also shows losses of $482 million from digital assets held for investment purposes. However, looking at Coinbase's Q1 income statement, even excluding these non-operating expenses, Coinbase's Q1 2026 operating income was negative, with a loss of $21.4 million.

In Q4 2025, also affected by the overall decline in the crypto market and weak crypto trading, Coinbase's crypto asset impairment losses reached as high as $718.2 million, resulting in a net loss of $666.7 million. However, in that quarter, Coinbase's operating income was still positive, reaching $273.8 million.

Coinbase Q1 Income Statement

This indicates that while the weak crypto market impacted Coinbase's net profit, the company's performance was not as stable and controllable as Brian Armstrong described.

The problem lies in Coinbase's main revenue driver: its brokerage business, which provides digital asset trading intermediary services for retail and institutional clients. Q1 2026 data shows Coinbase's transaction revenue reached $756 million, with retail clients contributing $567 million, down 48.2% year-over-year and 23% quarter-over-quarter. Retail trading revenue has fallen back to 2024 levels.

Coinbase Quarterly Trading Revenue

This actually reflects a potential threat facing Coinbase: in a declining crypto market, it is also starting to lose users.

Investors should not be misled by Coinbase's earnings presentation, which highlights an all-time high market share in cryptocurrency trading volume. This metric includes products like derivatives and prediction markets, not just the spot market. According to Coinbase CFO Alesia Haas, these new products are not included in transaction revenue (though they are part of total revenue).

Coinbase's core strength has been its compliance in the US. Historically, it has charged fees significantly higher than most global exchange peers. This was to cover high compliance costs and as a premium charged to users after its early "monopoly" in the US crypto market. But the regulatory landscape in the US has changed. Coinbase's compliance advantage is no longer a "game-killer," as over ten exchanges have now obtained licenses to offer crypto trading services to US users, including Robinhood, Kraken, and Binance.US.

These latecomers uniformly charge lower fees than Coinbase, using it as a primary competitive tactic to attract retail users.

Fee Percentages Charged by Different Exchanges

For US retail users, in the early days of the crypto market, they might have been willing to pay extra to Coinbase for convenience, trust, and regulatory certainty. However, as crypto regulation matures and market downturns have hit, users naturally gravitate towards platforms with lower fees, especially after traditional brokerages and financial institutions like Robinhood entered the crypto space.

Addressing the fee issue on the earnings call, Brian Armstrong responded, "Customers choose us not because we are the cheapest, but because we offer products that meet their needs." Although Coinbase One has surpassed 1 million paying subscribers, when it comes to token variety and listing speed, the rise of DEXs like Hyperliquid has also significantly impacted Coinbase and other CEXs.

Recently, Coinbase announced layoffs of 14%, leaving around 4,300 employees (down from 4,988 at the end of Q1). In the layoff announcement, Brian Armstrong cited the market downturn and the AI technology revolution as reasons. However, the actual revenue situation disclosed in the Q1 report confirms that this was merely a cost-cutting exercise disguised as an AI revolution. (Related reading: Coinbase Lays Off 14%: Is the Bear Market or AI the Main Cause?)

Selling Hype While Circle Keeps It Afloat

Facing challenges like a weak crypto market, declining spot trading, and user loss, Coinbase is actively seeking new paths. Brian Armstrong stated on the earnings call that Coinbase is moving away from its reliance on spot trading, transforming from a "spot-focused crypto platform" into a platform where users can trade a wider range of asset classes—including derivatives, stocks and commodities, prediction market contracts, etc.—an "Everything Exchange."

These products were launched in early 2026. Coinbase stated that retail derivatives generate over $200 million in annualized revenue, and the prediction market generates over $100 million. Coinbase CFO Alesia Haas noted these new product revenues are not counted in transaction or subscription revenue. Assuming all other income comes from these new products, the reality is that these new products generated a maximum total revenue of $73.6 million in Q1.

Simultaneously, Coinbase is deliberately "obscuring" the profitability generated by Base. Brian Armstrong claimed that Base processes 62% of the global on-chain stablecoin transaction volume, and over 90% of on-chain agent stablecoin transaction volume occurs on Base. However, Coinbase did not break out Base's revenue separately in its financial statements. After carefully reviewing the report, it appears Coinbase either hasn't disclosed Base's real revenue or has lumped it into the "Other subscription and services revenue" line item. In past quarters, Coinbase often recorded on-chain revenue here. In Q1 2026, this line item generated only $109.4 million.

Base's On-Chain Fee Revenue Over the Past 30 Days is $2.72 Million (Source: DeFiLlama)

In summary, it appears Coinbase is using long-term narratives around derivatives, prediction markets, AI, and on-chain activity to paint a rosy picture for investors, diverting attention from the poor performance of its core business. Whether these areas will ultimately become Coinbase's new "cash cow" remains to be seen over time. Chasing market hotspots by aggressively expanding its product line might provide more stories to tell the market, but one misstep could lead to a chaotic mess.

However, Coinbase has the capital to experiment, thanks to its "good brother" Circle providing a lifeline.

The Q1 report shows Coinbase's Q1 2026 stablecoin revenue reached $305 million, up 10% year-over-year. Stablecoin revenue is Coinbase's second-largest revenue source (Odaily note: The largest source is retail trading revenue; together they account for 62% of total revenue).

Coinbase Q1 Subscription and Services Revenue

This substantial revenue primarily stems from the revenue-sharing agreement between Coinbase and Circle. According to an agreement signed in August 2023, Coinbase receives 100% of the interest income generated by USDC held on its platform, and they split the interest income from USDC held off-platform 50/50. During the Q1 2026 earnings call, Alesia Haas reiterated that the distribution contract between Coinbase and Circle is automatically renewed every three years and never terminates.

This structure positions Coinbase as a toll booth for USDC, and stablecoin revenue could very likely become Coinbase's primary revenue source in the future. On one hand, USDC deposited across Coinbase's platforms and products continues to grow. According to the report, over 25% of all circulating USDC is held on Coinbase (averaging about $19 billion worth of USDC held within Coinbase products). On the other hand, as stablecoins go mainstream, Circle's interest income is also growing. As shown in the chart below, Circle's interest income grew from $558 million in Q1 2025 to $733 million by the end of the year.

On May 11, Circle is scheduled to release its Q1 2026 earnings report, allowing investors to examine Circle's Q1 2026 interest income and the profits distributed to Coinbase.

However, Coinbase has indeed played a significant role in distributing USDC. Beyond regular channels, Coinbase is also heavily promoting USDC in AI and agent-to-agent (A2A) payments. According to the report, Coinbase's x402 protocol (Odaily note: Now operated by the Linux Foundation) has processed over 100 million payments, with more than 99% of x402 transactions completed using USDC. Coinbase estimates that by 2030, AI Agents will handle $3 trillion to $5 trillion in transactions, and cryptocurrency will become the preferred native execution channel for Agents. If USDC dominates Agent transaction settlement, it could generate enormous economic value for Coinbase.

Therefore, if the distribution agreement between Coinbase and Circle never terminates, Coinbase is permanently tied to the USDC "money printer." As long as the global stablecoin market continues to grow and USDC expands in areas like payments, AI Agents, cross-border settlements, and internet finance, Coinbase can steadily extract profits. To some extent, this could be more profitable and more stable than Coinbase's current exchange business and the revenue from its various new products.