Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Crypto Weekly: Ethereum, it is time to merge
Mads Eberhardt
Cryptocurrency Analyst
Summary: The last test of the highly anticipated Ethereum merge was a success. The real merge has now been scheduled for either the 15th or 16th of September. Whereas the latter was a success, Coinbase’s Q2 result was arguably not a success compared to the market’s consensus.
The Ethereum merge has been scheduled following the final test
On Thursday, the final public test of the highly anticipated Ethereum merge occurred successfully as the test network known as Görli successfully adopted a proof-of-stake framework. One day later, the developers of Ethereum announced that the real merge is likely to take place on either the 15th or 16th of September next month. This is in line with what we estimated earlier this month, assigning a 95% chance of a merge in September in case Görli occurred flawlessly, as it did. This means that one of the most significant events in the history of crypto is only around a month away.
It seems that traders are likewise anticipating the merge. Ethereum hit a local high against Bitcoin since January of 0.0816 (ETHBTC) this weekend alongside hitting a new 3-month high in dollar terms of over $2,000. This is rather remarkable because Ethereum has previously decreased against Bitcoin during bear markets with Bitcoin behaving somewhat as a safe haven within the highly speculative crypto market. At present, the pair trades at 0.0793.
Coinbase releases Q2 2022 result
On Tuesday, the largest US-based crypto exchange NASDAQ-listed Coinbase reported its second quarter result. The result was, however, not encouraging for shareholders. The company’s revenue declined by nearly 64% compared to the same quarter last year, while the company noted a loss accurately exceeding $1bn. Yet, $377mn of that was caused by depreciating its crypto holdings, with the latter taking a severe hit during the quarter. Coinbase laid off around 18% of its workforce in Q2 while enforcing a hiring freeze. The major issue for Coinbase in Q2 and not least going forward is the fact that its retail trading has decreased substantially, although its volume from institutional clients is fairly more stable. The challenge with the latter is that Coinbase earns significantly less on institutional rather than retail trading. As a consequence, institutional clients’ volume is over three times as much but pays overall 15 times less in trading fees than retail clients. So, unless retail trading surges, the fundamental of Coinbase is likely not improving. Making matters worse, Coinbase is encountering further competition on retail trading from, for instance, Robinhood, potentially over time pushing Coinbase’s high margins on retail trading down.
Alongside 21 other companies, Coinbase is a part of our Crypto & Blockchain equity basket for investors wanting to get exposure to the crypto market through crypto-related companies (the basket should not be considered as a trade recommendation, only as an inspirational list).
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