Here’s What You Missed in Crypto This Week

As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week’s top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.

COINBASE ASKS JUDGE TO DISMISS SEC LAWSUIT: Coinbase (COIN) has asked a judge to dismiss the U.S. Securities and Exchange Commission’s lawsuit claiming the crypto exchange violated federal security laws, Reuters’ Chris Prentice reported Friday, citing a federal court filing. The company said the agency has no authority to pursue the suit as the digital assets and services it objected to did not qualify as securities. “Our core argument is simple – we do not offer ‘investment contracts’ as that term has been construed by decades of Supreme Court and other binding precedent,” Coinbase CLO Paul Grewal said. (read more)

Additionally on Thursday, Coinbase reported second quarter loss per share of (42c) on revenue of $707.9M, which compared to a loss per share of ($4.98) on revenue of $808.3M last year. The company also reported Q2 adjusted EBITDA of $194M, compared to a loss of ($151M) for the same period last year. “Q2 was a strong quarter of execution for Coinbase and marked continued progress in our journey to build a company that is increasingly efficient and financially disciplined,” The company said, “One year ago in Q2 2022, we started reducing our expense base to operate more efficiently. One year later, we’re proud to say that our quarterly recurring operating expenses have dropped nearly 50% Y/Y. This includes a 30%+ Y/Y reduction in headcount which, while painful, has paved the way for a more efficient environment where our teams are exhibiting stronger execution, and yielding results. In Q2, we again generated positive Adjusted EBITDA and increased our $USD Resources for the first time since late 2021, all while continuing to grow our product suite. Our ambition remains unchanged: to build trusted and easy to use products and services to bring over 1 billion people into crypto.” (read more)

Coinbase also maintained its goal to improve 2023 adjusted EBITDA compared to that of 2022. The company said, “In July, we generated approximately $110M of transaction revenue. We expect Q3 subscription and services revenue to be at least $300M and Q3 transaction expenses as a percentage of net revenue to be in the mid teens. We anticipate Q3 technology & development and general & administrative expenses to be $575M-$625M, with the Q/Q increase primarily driven by the timing of recognition of stock-based compensation expenses. We expect sales & marketing expenses to be $80M-$90M. Lastly, we maintain our goal to improve full-year 2023 Adjusted EBITDA in absolute dollar terms versus full year 2022.” (read more)

Following the earnings report, JMP Securities raised the firm’s price target on Coinbase to $107 from $90 and kept an Outperform rating on the shares. Coinbase reported a solid quarter and incrementally better outlook, and despite a subdued market environment, the company continues to focus on developing its growth engines and executing on its product roadmap, the analyst said. (read more) Additionally, Barclays kept an Underweight rating on Coinbase with a $70 price target. The company’s adjusted EBITDA beat Street estimates, driven by a higher take rate on retail transactions and lower operating costs, the analyst said. The firm added Coinbase “struck a confident tone” in its ability to win the case with the SEC, and will be filing a note to dismiss. (read more)

STRONGHOLD REPORTS PRELIMINARY Q2 REVENUE: On Thursday, Stronghold Digital (SDIG) announced preliminary Q2 revenue of $18.2M, net loss of ($11.7M) and non-GAAP adjusted EBITDA loss of $2.6M. The company also reported generation of 626 bitcoin in Q2. The company said, “Power markets have been weak for the majority of 2023, and the company was able to benefit by importing power during the second quarter. However, summer heat and a modest seasonal improvement in power prices arrived over the second half of July. Stronghold believes that its integrated business model once again demonstrated the flexibility to optimize between bitcoin mining revenue and power revenue. Stronghold mined 205 bitcoin in July, and the company generated approximately $0.6M in energy revenue from curtailment operations over the course of the month, which represents the equivalent of an additional approximately 20 bitcoin based on the average price of bitcoin in July.” (read more)

MICROSTRATEGY REPORTS Q2 EARNINGS: On Tuesday, MicroStrategy (MSTR) reported Q2 earnings per share of $1.52, which compared to a net loss per share of ($94.01) for the same period last year. The company also reported Q2 revenue of $120.4M, which compared to consensus of $124.7M. As of June 30, the carrying value of the company’s digital assets comprised of approximately 152,333 bitcoins was $2.323B and the original cost basis and market value of the company’s bitcoin were $4.519B and $4.625B, respectively. “Our bitcoin holdings increased to 152,800 bitcoins as of July 31, 2023, with the addition in the second quarter of 12,333 bitcoins being the largest increase in a single quarter since Q2 2021. We efficiently raised capital through our at-the-market equity program and used cash from operations to continue to increase bitcoins on our balance sheet. And we did so against the promising backdrop of increasing institutional interest, progress on accounting transparency, and ongoing regulatory clarity for bitcoin,” said CFO Andrew Kang. (read more)

Following earnings, Canaccord raised the firm’s price target on MicroStrategy to $513 from $400 and kept a Buy rating on the shares. The firm said the company continues to innovate in its dual strategy of being both an operating company and a modestly leveraged investment play in digital assets, and Canaccord believes this strategy is working. (read more)

GAMESTOP ENDS SUPPORT FOR CRYPTO WALLET: GameStop (GME) said Tuesday it is ending support for GameStop Wallet, its cryptocurrency wallet. “Due to the regulatory uncertainty of the crypto space, GameStop has decided to remove its iOS and Chrome Extension wallets from the markets on November 1, 2023,” the company said. “We advise that all customers ensure that they have access to their Secret Passphrase by October 1, 2023. Any customer with access to their Secret Passphrase has the ability to recover their account in any compatible wallet.” (read more)

JUDGE RULES TERRAFORM MUST FACE SEC ALLEGATIONS: U.S. District Judge Jed Rakoff rejected co-founder and CEO of Singapore-based Terraform Labs Do Kwon’s request to negate a prior U.S. enforcement action against him, The Wall Street Journal’s Dave Michaels reported Monday. Rakoff’s order gives the Securities and Exchange Commission’s legal strategy to regulate the crypto market more leverage and means Kwon and his company will have to continue defending against the lawsuit, which alleges legal violations including fraud. (BTBT), Coinbase, Core Scientific (CORZ), Greenidge Generation (GREE), Marathon Digital (MARA), MicroStrategy, Riot Platforms (RIOT), Stronghold Digital Mining and TeraWulf (WULF).

PRICE ACTION: As of time of writing, bitcoin dropped roughly 1% this week to $29,191 in U.S. dollars, according to CoinDesk.