Coinbase Global reported third-quarter net revenue of $1.16 billion, down 34% from $1.76 billion a year earlier and below the $1.21 billion analysts expected.
Subdued crypto volatility and lighter trading weighed on the core business, but the prediction market unit, in operation for less than a year, posted some of the fastest growth in the exchange’s history.
The largest regulated US cryptocurrency exchange said its prediction market business “surpassed $200 million in annualized revenue” in the September quarter, while “daily traders grew 60%+ quarter-over-quarter.”
Coinbase offers event contracts through a partnership with Kalshi.
“Prediction markets see 82% quarterly compound growth since launch: Coinbase prediction markets are one of the fastest-growing products by revenue in Coinbase’s history, creating a new source of growth for the Everything Exchange,” the company said in a statement.
Shares slid 3.5% in after-hours trading.
A revenue stream less tied to crypto cycles
Chief Financial Officer Alesia Haas said prediction markets “are adding another revenue stream and are less correlated to crypto volatility.” Investors have long viewed Coinbase shares as tethered to cryptocurrency market sentiment.
In an interview with Coinage, Chief Business Officer Shan Aggarwal said the newer businesses are starting to show that long-term growth may not depend as heavily on crypto trading cycles.
“I think the big thing for me is that our diversification efforts are really starting to show up in the results,” Aggarwal said. “Derivatives and prediction markets in particular, those now comprise over 25% of our transaction revenue. And just a few years ago, that was at 0%.”
Aggarwal said the wider product mix is helping Coinbase become “an all-weather business.” Subscription and services revenue reached $570 million, up 3% from the previous quarter and nearly half of net revenue.
Coinbase also recorded its fourth consecutive quarter of crypto trading volume market share gains, and its share doubled over the past year to 10.7%.
The company expects fourth-quarter adjusted expenses of $1.07 billion to $1.157 billion, partly due to greater investment in prediction markets.
From event contracts to spot trading
According to Aggarwal, customers who participate in prediction markets increase their activity in traditional crypto trading.
“We think we’re really just scratching the surface,” he said. “The people who trade prediction markets, they actually go on to drive incremental crypto spot trading volume.”
Prior industry commentary has indicated that many prediction market traders are new to crypto but frequently adopt digital currencies when both products sit on one platform. That funnel supports what CEO Brian Armstrong has called the “Everything Exchange,” a one-stop shop for clients’ financial services needs.
“Using prediction markets to bring traders in and then graduate them into options, futures, and retirement accounts is smart from a business standpoint,” said Dat Ngo, an accountant and financial expert at Vetted Prop firms.
Non-sports contracts lead the mix
More than half of the prediction market contracts traded on Coinbase during the quarter were in non-sports categories, including crypto-related events and elections, unlike other platforms where sports dominate.
Sports remain the largest volume generator across the industry, although cryptocurrency is one of the fastest-growing segments outside that category.
Aggarwal attributed this to Coinbase’s customer base, which tends to have a stronger interest in cryptocurrency markets. The exchange competes with Robinhood and specialized prediction market platforms, but Aggarwal declined to provide a specific market share target.
“We’re really just focused on scaling the business right now and then optimizing the economics,” he said.
