Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022*. Th**e following discussion and analysis contain forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include,* but are not limited to, those identified below and those discussed in the section titled Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” and “Coinbase” refer to Coinbase Global, Inc. and its consolidated subsidiaries. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this Quarterly Report on Form 10-Q.

Executive Overview

This executive overview of Management’s Discussion and Analysis of Financial Condition and Results of Operations highlights selected information and does not contain all of the information that is important to readers of this Quarterly Report on Form 10-Q.

This quarter represented a turning point in our drive towards building a company that is more efficient and financially disciplined; a company that is able to do more for less. We reduced costs, doubled down on operational excellence and risk management, and continue to drive product innovation and regulatory clarity. Our efforts are showing meaningful progress.

For the three months ended March 31, 2023, our total net revenue was $736.4 million, including $374.7 million in transaction revenue. For the three months ended March 31, 2022, we generated $1.2 billion of total net revenue, including $1.0 billion in transaction revenue.

Subscription and services revenue was $361.7 million for the three months ended March 31, 2023 and $151.9 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, our net loss was $78.9 million, and Adjusted EBITDA was $283.7 million. For the three months ended March 31, 2022, our net loss was $429.7 million and Adjusted EBITDA was $19.7 million.

The crypto industry continues to be volatile, as evidenced most recently by the disruptions in the banking sector and ongoing regulatory uncertainty. While we can’t predict the outcome of these events, we continue to focus on our cost reduction efforts.

Key Business Metrics

In addition to the measures presented in our condensed consolidated financial statements, we use the key business metrics listed below to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions:


	Three Months Ended March 31,				% Change
		2023	2022

MTUs (in millions)			8.4		9.2		(9)	%
Trading Volume (in billions)			$	145	$	309	(53)

Net loss (in millions)			$	(79)	$	(430)	(82)
Adjusted EBITDA(1) (in millions)			$	284	$	20	1,320

(1)Please see the section titled Non-GAAP Financial Measure below for a reconciliation of net loss to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors.

Monthly Transacting Users

We define an “MTU” as a consumer who actively or passively transacts in one or more products on our platform at least once during the rolling 28-day period ending on the date of measurement. MTUs presented for the end of a quarter are the average of each month’s MTUs in each respective quarter. MTUs engage in transactions that generate both transaction revenue and subscription and services revenue. Revenue-generating transactions include active transactions such as buying or selling crypto assets through our Invest product or passive transactions such as earning a staking reward. MTUs also engage in transactions that are non-revenue generating such as send and receive. MTUs may overstate the number of unique consumers due to differences in product architecture or user behavior.

Trading Volume

We define “Trading Volume” as the total U.S. dollar equivalent value of spot matched trades transacted between a buyer and seller through our platform during the period of measurement. Trading Volume represents the product of the quantity of asset transacted and the trade price at the time the transaction was executed. As trading activity directly impacts transaction revenue, we believe this measure is a reflection of liquidity on our order books, trading health, and the underlying growth of the cryptoeconomy. Generally, Trading Volume on our platform is primarily influenced by the price of crypto assets, Crypto Asset Volatility and macroeconomic conditions. In periods of high crypto asset prices and Crypto Asset Volatility, we have experienced correspondingly high levels of Trading Volume on our platform. Our Trading Volume in future periods will depend on the relative availability and adoption of Bitcoin, Ethereum, and other crypto assets.


	Three Months Ended March 31,						% Change
	2023			2022
Trading Volume (in billions):
Consumer	$	21		$	74		(72)	%
Institutional	124			235			(47)
Total	$	145		$	309		(53)

Trading Volume by crypto asset:
Bitcoin	32		%	24		%	33
Ethereum	24			21			14
Other crypto assets	45			55			(18)
Total(1)	100		%	100		%

Transaction revenue by crypto asset:
Bitcoin	36		%	25		%	44
Ethereum	18			23			(22)
Other crypto assets	46			52			(12)
Total	100		%	100		%

(1)Figures presented above may not sum precisely due to rounding.

Trading Volume for the three months ended March 31, 2023 was 53% lower as compared to the three months ended March 31, 2022. Crypto Asset Volatility was 32% lower for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The decrease in both Trading Volume and Crypto Asset Volatility were driven by materially different market conditions between the quarters that have evolved over the last year. The first quarter of 2022 continued a trend of both lower crypto prices and volatility that began in late 2021 driven by weaker macroeconomic conditions. These already weakening market conditions were exasperated by the events of 2022. The first was the depegging of $LUNA in the second quarter of 2022 which contributed to approximately 60% crypto market capitalization decline in that quarter and ultimately drove the credit related bankruptcies of Three Arrows Capital, Voyager and Celsius. The second event was the collapse of FTX in the fourth quarter of 2022, which drove additional credit related bankruptcies. These events contributed to an overall market capitalization decline of 64% or approximately $1.5 trillion of value lost in 2022 which in turn impacted overall industry trading volume and more specifically Coinbase Trading Volume and transaction revenues in the three months ended March 31, 2023.

During the three months ended March 31, 2023 and 2022, no asset other than Bitcoin and Ethereum individually represented more than 10% of our Trading Volume or transaction revenue, respectively.

Components of Results of Operations

Net revenue

Transaction revenue

Net revenue consists of transaction revenue generated from transaction fees from trades that occur on our platform. The transaction fee earned is based on the price and quantity of the crypto asset that is bought, sold, or converted. Transaction revenue is recognized at the time the transaction is processed and is directly correlated with Trading Volume.

Subscription and services revenue

Subscription and services revenue primarily consists of:

Blockchain rewards: We derive blockchain rewards through various blockchain protocols. These blockchain protocols, or the participants that form the protocol networks, reward users for performing various activities on the blockchain, such as participating in proof-of-stake networks. We earn blockchain rewards on crypto assets.

Our staking revenue is included within blockchain rewards. Our blockchain services offered as part of Coinbase Cloud’s blockchain infrastructure solutions are included in other subscription and services revenue.

Custodial fee revenue: We derive custodial fee revenue based on a percentage of the daily value of customer crypto assets that we hold under custody in our dedicated cold storage solution. The value of crypto assets held under custody is driven by the quantity, price, and type of crypto asset.
Interest income: We earn income on fiat funds under a revenue sharing arrangement with the issuer of USDC pursuant to which we share any interest income generated from USDC reserves pro rata based on (i) the amount of USDC distributed by each respective party and (ii) the amount of USDC held on each respective party’s platform. Our income is dependent on the balance of such fiat funds and the prevailing interest rate environment. We also earn interest income on loans issued to our consumers and institutional users. Additionally, we hold customer custodial funds and cash and cash equivalents at certain third-party banks which earn interest. Interest earned on revenue sharing, customer custodial funds, and loans is included in interest income within subscription and services revenue. Interest earned on cash and cash equivalents is included in corporate interest and other income, within other revenue.
Other: Other subscription and services revenue primarily includes subscription revenue from Coinbase One, revenue from Coinbase Cloud, which includes staking application, delegation, and infrastructure services, Learning Rewards (formerly “Earn”) campaign revenue, and revenue from other subscription licenses.

Other revenue

Other revenue includes interest income earned primarily on our corporate cash and cash equivalents. Interest income is calculated using the interest method and depends on the balance of cash and cash equivalents as well as the prevailing interest rate environment. Other revenue also includes the sale of crypto assets when we are the principal in the transaction. Transactions involving our sale of crypto assets represented less than 0.1% of our total revenue for the three months ended March 31, 2023.

Operating expenses

Operating expenses consist of transaction expense, technology and development, sales and marketing, general and administrative, restructuring, and other operating (income) expense, net.

Transaction expense

Transaction expense includes costs incurred to operate our platform, process crypto asset trades, and perform wallet services. These costs include account verification fees, miner fees to process transactions on blockchain networks, fees paid to payment processors and other financial institutions for customer transaction activity, and crypto asset losses due to transaction reversals. Transaction expense also includes rewards paid to users for staking activities conducted by us. Fixed-fee costs are expensed over the term of the contract and transaction-level costs are expensed as incurred.

Technology and development

Technology and development expenses include personnel-related expenses incurred in operating, maintaining, and enhancing our platform. These costs also include website hosting, infrastructure expenses, costs incurred in developing new products and services and the amortization of acquired developed technology.

Sales and marketing

Sales and marketing expenses primarily include costs related to customer acquisition, advertising and marketing programs, and personnel-related expenses. Sales and marketing costs are expensed as incurred.

General and administrative

General and administrative expenses include personnel-related expenses incurred to support our business, including executive, customer support, compliance, finance, human resources, legal, and other support operations. These costs also include software subscriptions for support services, facilities and equipment costs, depreciation, amortization of acquired customer relationship intangible assets, gains and losses on disposal of fixed assets, legal reserves and settlements, and other general overhead. General and administrative costs are expensed as incurred.

Restructuring

Restructuring expenses primarily consist of non-recurring costs and severance for employees related to reductions in our headcount during the three months ended March 31, 2023. For more information, see Note 3. Restructuring of the Notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other operating (income) expense, net

Other operating (income) expense, net includes impairment and realized gains on the sale of crypto assets, realized gains and losses resulting from the settlement of derivative instruments, and fair value gains and losses related to derivatives and derivatives designated in qualifying fair value hedge accounting relationships.

Other operating (income) expense, net also includes the cost of our crypto assets used to fulfill customer accommodation transactions. Periodically, as an accommodation to customers, we may fulfill customer transactions using our own crypto assets held for operating purposes. We have custody and control of the crypto assets prior to the sale to the customer. Accordingly, we record the total value of the sale in other revenue and the cost of the crypto asset in other operating (income) expense, net.

Interest expense

Interest expense on debt includes coupon interest expense, as well as amortization of debt discounts and debt issuance costs.

Other expense, net

Other expense, net includes the following items:

gains and losses on investments, net, which consists primarily of realized and unrealized gains and losses from fair value adjustments on investments;
realized impacts on foreign exchange resulting from the settlement of our foreign currency assets and liabilities, unrealized impacts on foreign exchange resulting from remeasurement of transactions and monetary assets and liabilities denominated in non-functional currencies; and
impairment recognized on certain strategic equity investments in privately held companies without readily determinable fair values.

Benefit from income taxes

Benefit from income taxes includes income taxes related to foreign jurisdictions and U.S. federal and state income taxes.

Results of Operations

The following table summarizes the historical condensed consolidated statements of operations data:


	Three Months Ended March 31,
			2023		2022
		(in thousands)
Revenue:
Net revenue			$	736,398	$	1,164,891
Other revenue			36,131		1,545
Total revenue			772,529		1,166,436
Operating expenses:
Transaction expense			96,369		277,826
Technology and development			358,031		570,664
Sales and marketing			63,976		200,204
General and administrative			248,761		413,578
Restructuring			144,489		—
Other operating (income) expense, net			(15,222)		258,627
Total operating expenses			896,404		1,720,899
Operating loss			(123,875)		(554,463)
Interest expense			21,536		22,138
Other expense, net			20,265		32,844
Loss before income taxes			(165,676)		(609,445)
Benefit from income taxes			(86,780)		(179,786)
Net loss			$	(78,896)	$	(429,659)

The following table presents the components of the condensed consolidated statements of operations data as a percentage of total revenue:


	Three Months Ended March 31,
			2023		2022
		(as a % of total revenue)(1)
Total revenue			100	%	100	%
Operating expenses:
Transaction expense			12		24
Technology and development			46		49
Sales and marketing			8		17
General and administrative			32		35
Restructuring			19		—
Other operating (income) expense, net			(2)		22
Total operating expenses			116		148
Operating loss			(16)		(48)
Interest expense			3		2
Other expense, net			3		2
Loss before income taxes			(21)		(52)
Benefit from income taxes			(11)		(15)
Net loss			(10)	%	(37)	%

(1)Figures presented above may not sum precisely due to rounding.

Comparison of the three months ended March 31, 2023 and 2022

Revenue


	Three Months Ended March 31,
		2023		2022		% Change

	(in thousands)
Transaction revenue		$	374,713	$	1,013,036	(63)	%
Subscription and services revenue		361,685		151,855		138
Other revenue		36,131		1,545		2,239
Total revenue		$	772,529	$	1,166,436	(34)

Transaction revenue for the three months ended March 31, 2023 decreased by $638.3 million compared to the three months ended March 31, 2022, primarily due to the following:

a decrease in consumer Trading Volume of 72% due to a decrease in crypto market capitalization, including average crypto asset prices; and
a decline in Crypto Asset Volatility of 32%. Trading Volume on our platform is generally correlated with Crypto Asset Volatility.

A number of factors contribute to changes in crypto asset prices and Crypto Asset Volatility, including, but not limited to, changes in the supply and demand for a particular crypto asset, crypto market sentiment, macroeconomic factors, utility of a particular crypto asset, and idiosyncratic events.

Subscription and services revenue for the three months ended March 31, 2023 increased by $209.8 million compared to the three months ended March 31, 2022, due to the following:

an increase in interest income of $230.4 million due to increased returns on our revenue sharing arrangement with the issuer of USDC and on interest-bearing customer custodial funds, driven by an increase in interest rates; offset by
a decrease in custodial fee revenue of $14.7 million due to a decrease in average assets under custody of $51.8 billion primarily driven by a decrease in average asset prices of crypto assets under custody; and
a decrease in blockchain rewards of $8.1 million primarily due to a reduction in average asset prices, offset by an increase in staked balances, and the addition of new assets available for staking such as Solana and Cardano.

Other revenue for the three months ended March 31, 2023 increased by $34.6 million compared to the three months ended March 31, 2022 due to an increase in corporate bank interest income from higher interest rates.

Operating expenses


	Three Months Ended March 31,
		2023		2022		% Change

	(in thousands)
Transaction expense		$	96,369	$	277,826	(65)	%
Technology and development		358,031		570,664		(37)
Sales and marketing		63,976		200,204		(68)
General and administrative		248,761		413,578		(40)
Restructuring		144,489		—		100

Other operating (income) expense, net		(15,222)		258,627		(106)
Total operating expenses		$	896,404	$	1,720,899	(48)

Transaction expense for the three months ended March 31, 2023 decreased by $181.5 million, compared to the three months ended March 31, 2022.

Transaction expense as a percentage of net revenue was 13.1% and 23.8% during the three months ended March 31, 2023 and 2022, respectively. During the year ended December 31, 2022 and three months ended March 31, 2023, we have launched several efforts to lower our unit cost on transaction expenses. This includes optimization efforts across miner fees, payment processing fees and transaction reversal losses. Our transaction expenses as a percentage of net revenue will vary depending on our revenue mix between transaction (which varies with trading volume) and blockchain revenue.

The decrease in transaction expense for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was driven by the following:

a decrease of $82.1 million related to miner fees driven by a decrease in blockchain transmission volume, both related to customer withdrawals and corporate wallet movements, lower blockchain network fees such as Ethereum gas prices, and significant investments in batching and other optimizations in on-chain activity;
a decrease of $52.4 million related to lower payment processing fees and account verification expenses driven by lower settled trading volume;
a decrease of $35.4 million related to transaction reversal losses driven by lower transaction volumes and our investments in strengthening controls and cost optimization efforts; and
a decrease of $12.8 million related to a decrease in blockchain activities associated with rewards paid or payable to users from blockchain activities such as staking.

Technology and development expenses for the three months ended March 31, 2023 decreased by $212.6 million compared to the three months ended March 31, 2022, due to the following:

a decrease of $176.3 million in personnel-related expenses, including a $133.8 million decrease in stock-based compensation expense, due to a decrease in average headcount and the roll-off of certain stock based compensation awards following our workforce reduction in January 2023, along with certain compensation program changes; and
a decrease of $51.0 million in website hosting service costs and software and service costs, due to cost optimization efforts through the year ended December 31, 2022 and three months ended March 31, 2023; offset by
an increase of $10.4 million in amortization expense, primarily related to amortization on increased capitalized software.

Sales and marketing expenses for the three months ended March 31, 2023 decreased by $136.2 million compared to the three months ended March 31, 2022. Sales and marketing expenses as a percentage of net revenue were 8.7% and 17.2% during the three months ended March 31, 2023 and 2022, respectively.

The decrease in sales and marketing expenses for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, was due to the following:

a decrease of $84.3 million in digital advertising spend due to lower investment in paid media;
a decrease of $37.2 million due to lower offline and brand spend; and
a decrease of $16.8 million in referral and promotion fees due to lower spend on new user incentives and sweepstakes.

General and administrative expenses for the three months ended March 31, 2023 decreased by $164.8 million compared to the three months ended March 31, 2022 partially due to the following:

a decrease of $108.4 million in consumer customer support costs due to a decrease in managed services to support compliance operations and customer experience, driven by automation and reduction in capacity needs that we built in 2022 to address backlogs from 2021, and a decrease in personnel-related expenses resulting from the workforce reductions in June 2022 and January 2023;
a decrease of $18.3 million in personnel-related expenses excluding consumer customer support, including a $11.9 million decrease in stock-based compensation expense;
a decrease of $13.4 million in taxes, licenses, and fees; and
a decrease of $12.7 million in equipment and furniture.

Restructuring expenses were $144.5 million for the three months ended March 31, 2023. The $144.5 million is driven by separation pay, stock-based compensation expense relating to the acceleration of the vesting of outstanding equity awards in accordance with the terms of such awards and other personnel costs related to the workforce reduction in January 2023. There were no restructuring expenses for the three months ended March 31, 2022.

Other operating (income) expense, net for the three months ended March 31, 2023 decreased by $273.8 million compared to the three months ended March 31, 2022, due to the following:

a decrease of $199.0 million related to gross impairment charges on crypto assets held;
a decrease of $45.4 million due to lower platform-related incidents and losses in the three months ended March 31, 2023; and
an increase of $34.2 million in crypto asset realized gains offset by net realized losses on futures contracts.

Interest expense


	Three Months Ended March 31,
		2023		2022		% Change

	(in thousands)
Interest expense		$	21,536	$	22,138	(3)	%

During the three months ended March 31, 2023, we had interest expense on debt of $21.5 million compared to $22.1 million for the three months ended March 31, 2022.

Other expense, net


	Three Months Ended March 31,
	2023		2022		% Change
	(in thousands)
Other expense, net	$	20,265	$	32,844	(38)	%

Other expense, net for the three months ended March 31, 2023 decreased by $12.6 million compared to the three months ended March 31, 2022 due to the following:

a decrease in realized and unrealized losses on foreign exchange of $17.4 million due to improvement in foreign exchange risk management and appreciation of the U.S. dollar against the Euro; offset by
Impairment expense of $5.0 million recognized during the three months ended March 31, 2023 on certain strategic equity investments.

Benefit from income taxes


	Three Months Ended March 31,
		2023		2022		% Change

	(in thousands)
Benefit from income taxes		$	(86,780)	$	(179,786)	(52)	%

The benefit from income taxes decreased by $93.0 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to lower tax benefits on pretax losses, certain stock-based compensation and research and development credits, offset by a partial release of a valuation allowance recorded on impairment charges.

Non-GAAP Financial Measure

In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We use Adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that Adjusted EBITDA may be helpful to investors because it provides consistency and comparability with past financial performance. However, Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Among other non-cash and non-recurring items, Adjusted EBITDA excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

We calculate Adjusted EBITDA as net loss or income, adjusted to exclude provision for or benefit from income taxes, depreciation and amortization, interest expense, crypto asset borrowing costs, stock-based compensation expense, crypto asset impairment, net, impairment on investments, other impairment, restructuring, change in unrealized foreign exchange, fair value gain or loss on derivatives, and other adjustments, net.

The following table provides a reconciliation of net loss to Adjusted EBITDA:


	Three Months Ended March 31,

		2023		2022

		(in thousands)
Net loss		$	(78,896)	$	(429,659)
Adjusted to exclude the following:
Benefit from income taxes		(86,780)		(179,786)
Depreciation and amortization		41,208		31,580
Interest expense		21,536		22,138
Crypto asset borrowing costs		1,520		1,436
Stock-based compensation		198,860		352,141
Crypto asset impairment, net(1)		12,085		209,818
Impairment on investments		5,008		—
Other impairment(2)		5,527		1,179
Restructuring		144,489		—
Change in unrealized foreign exchange		8,428		7,389

Fair value (gain) loss on derivatives		(3,199)		3,452

Other adjustments, net		13,866		—
Adjusted EBITDA		$	283,652	$	19,688

(1)Crypto asset impairment, net represents impairment on crypto assets still held.

(2)Other impairment represents impairment on property and equipment of $5.0 million for the three months ended March 31, 2023 and impairment on intangible assets of $0.5 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively.

(3)

Liquidity and Capital Resources

Cash and cash equivalents, restricted cash and USDC

As of March 31, 2023, we had cash and cash equivalents of $5.0 billion, exclusive of restricted cash and customer custodial funds. As of March 31, 2023 and December 31, 2022, our cash and cash equivalents, restricted cash and USDC balance consisted of the following (in millions):


	March 31,		December 31,
	2023		2022
Cash and cash equivalents:
Cash equivalents(1)	$	3,205.2	$	2,250.1
Cash held at banks	1,613.0		2,031.7
Cash held at venues	200.2		143.2
Total cash and cash equivalents	$	5,018.4	$	4,425.0

Restricted cash(2)	$	26.7	$	25.9
USDC(3)	302.9		861.1

(1) Cash equivalents consists of money market funds denominated in U.S. dollars.

(2) Restricted cash consists primarily of amounts held in restricted bank accounts at certain third-party banks as security deposits or pledged as collateral to secure letters of credit.

(3) USDC is a stablecoin which can be redeemed one USDC for one U.S. dollar on demand. While not accounted for as cash or cash equivalents, we treat our USDC holdings as a liquidity resource.

Debt

In September 2021, we issued $2.0 billion in Senior Notes consisting of $1.0 billion of 2028 Senior Notes due on October 1, 2028 and $1.0 billion of 2031 Senior Notes due on October 1, 2031. In May 2021, we issued an aggregate of $1.4 billion of 2026 Convertible Notes that mature on June 1, 2026, unless converted, redeemed or repurchased on an earlier date. We periodically issue short-term debt to support certain business operations. See Notes 10. Accrued Expenses and Other Current Liabilities and 11. Indebtedness of the Notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding our short and long-term borrowings, respectively.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.

In January 2023, S&P Global Ratings announced a downgrade of our issuer credit rating and senior unsecured debt from BB to BB-, and Moody’s Investors Service (“Moody’s”) announced a downgrade of our Corporate Family Rating (“CFR”) to B2 from Ba3 and downgraded our guaranteed senior unsecured notes to B1 from Ba2. As of March 31, 2023, our credit ratings with S&P Global Ratings and Moody’s remain unchanged from the above.

Crypto assets

Our crypto asset investment policy allows us to invest up to 10% of our quarterly net income into a diversified portfolio of crypto assets. Our investments will be deployed over a multi-quarter window. We continue to execute these trades away from our crypto asset trading platform to avoid any conflict of interest with our customers. We may increase or decrease our allocation over time.

As of March 31, 2023, we held $394.8 million of crypto assets for investment and operating purposes at impaired cost. Our future earnings and cash flows will be impacted when we choose to monetize our crypto assets and the variability of our earnings will be dependent on the future fair value of such crypto assets. We have limited ability to predict whether the sale of crypto assets received from airdrops or forks will be material to our future earnings, which is dependent on the future market liquidity, viability and fair value of such crypto assets. Our current policy is not to monetize unsupported forks or airdrops held on our platform. Crypto assets received through airdrops and forks, at the time of the airdrop or fork and at the end of the periods presented, are not material to our financial statements.

As of March 31, 2023 and December 31, 2022, the cost basis and fair value of our crypto assets held at impaired cost was as follows:


	March 31,				December 31,
	2023				2022

	Cost(1)		Fair Value(2)		Cost(1)		Fair Value(2)

	(in millions)
Crypto assets held as investments:
Bitcoin(3)	$	126.7	$	261.5	$	111.6	$	151.8
Ethereum(3)	108.3		194.4		91.2		138.7
Other	71.5		177.4		85.9		135.8
Total crypto assets held as investments	306.5		633.3		288.7		426.3

Crypto assets held for operating purposes:
Bitcoin	6.9		8.8		5.4		5.8
Ethereum	43.4		56.5		24.4		25.8
Other	38.0		51.6		37.7		59.1
Total crypto assets held for operating purposes	88.3		116.9		67.5		90.7
Total crypto assets held	$	394.8	$	750.2	$	356.2	$	517.0

(1)Cost amounts shown are net of impairment recognized.

(2)The fair value of crypto assets held is based on quoted market prices for one unit of each crypto asset reported on our platform at 11:59 pm Coordinated Universal Time (UTC) on the last day of the respective period multiplied by the quantity of each crypto asset held.

(3)During the fourth quarter of 2022, we entered into futures contracts to hedge our price exposure on crypto assets held as investments. These contracts were closed out during the first quarter of 2023. As of December 31, 2022, the cost and fair value amounts for Bitcoin were $89.9 million and $85.8 million, respectively, and the cost and fair value amounts for Ethereum were $43.7 million and $50.8 million, respectively.

We view our crypto asset investments as long term holdings and we do not plan to engage in regular trading of crypto assets. From time to time, we may enter into derivatives or other financial instruments in an attempt to hedge our price exposure on our crypto assets held as investments. During times of instability in the market of crypto assets, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. Customer accommodations and corporate expenses denominated in crypto assets are fulfilled with crypto assets held for operational purposes. We recognized $18.2 million and $141.7 million of impairment expense on our crypto asset investment portfolio for the three months ended March 31, 2023 and 2022, respectively.

We enter into fiat and crypto asset borrowing arrangements with certain institutional customers. These borrowings are generally open-term or have a term of less than one year. Certain borrowing arrangements require us to post collateral in the form of fiat or crypto assets, including stablecoins, and the lender may have the right to sell, repledge or rehypothecate such collateral without our consent. We only use our corporate crypto assets, stablecoins, and cash as collateral. We do not use cbETH as corporate collateral.

We are required to maintain a collateral to loan ratio per our borrowing agreements. Any significant change in crypto asset prices could impact the value of the crypto asset borrowed or the value of crypto asset collateral. Recent downward trends in crypto asset prices have not had a material impact on the value of our corporate collateral. If crypto asset prices rise, we will post additional collateral to maintain required collateral loan ratios. We were in compliance with all collateral requirements as of March 31, 2023. See Risk Factors - We provide secured loans to our customers, which exposes us to credit risks and may cause us to incur financial or reputational harm included in Part II, Item 1A of this Quarterly Report on Form 10-Q for further information.

As of March 31, 2023 and December 31, 2022, the balance of our pledged collateral consisted of the following (in millions, except units):


	March 31, 2023			December 31, 2022
	Units	Fair Value		Units	Fair Value
Asset
USDC	78,407,648	$	78.4	47,633,897	$	47.6
Bitcoin	—	—		650	10.8
Fiat	N/A	0.6		N/A	41.6
Total		$	79.0		$	100.0

Customer crypto assets and liabilities

We safeguard customer crypto assets and the associated keys and are obligated to safeguard them from loss, theft, or other misuse. In accordance with recently adopted guidance, SAB 121, we record customer crypto liabilities, as well as a corresponding customer crypto asset on the condensed consolidated balance sheets, at fair value. See Note 8. Customer Assets and Liabilities of the Notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for further information as of March 31, 2023.

As of March 31, 2023, we have not experienced excessive redemptions or withdrawals, or prolonged suspended redemptions or withdrawals, of crypto assets to date. See Risk Factors - Depositing and withdrawing crypto assets into and from our platform involves risks, which could result in loss of customer assets, customer disputes and other liabilities, which could adversely impact our business included in Part II, Item 1A of this Quarterly Report on Form 10-Q for further information. We do not use customer crypto assets as collateral for any loan, margin, rehypothecation, or other similar activities without their consent to which we or our affiliates are a party.

Cash requirements and contractual obligations

Certain jurisdictions where we operate require us to hold eligible liquid assets, as defined by applicable regulatory requirements and commercial law in these jurisdictions, equal to at least 100% of the aggregate amount of all customer custodial cash liabilities. Depending on the jurisdiction, eligible liquid assets can include cash and cash equivalents, customer custodial cash, and in-transit customer receivables. As of March 31, 2023 and December 31, 2022, our eligible liquid assets were greater than the aggregate amount of customer custodial cash liabilities. We are also required to hold corporate liquid assets at our subsidiaries to meet capital requirements established by our regulators based on the value of crypto assets held in custody. We are in compliance with these capital requirements.

We believe our existing cash and cash equivalents will be sufficient in both the short and long term to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements. Our ability to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements, will depend on many factors, including market acceptance of crypto assets and blockchain technology, our growth, our ability to attract and retain customers on our platform, the continuing market acceptance of our products and services, the introduction of new subscription products and services on our platform, expansion of sales and marketing activities, and overall economic conditions. We anticipate satisfying our short-term cash requirements with our existing cash and cash equivalents and may satisfy our long-term cash requirements with cash and cash equivalents on hand or with proceeds from a future equity or debt financing.

To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and cash and other requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. As a result of our downgrade, our ability to raise additional financing from external sources in the future may be adversely affected and we may not be able to raise capital on terms acceptable to us or at all. In addition, even if debt financing is available, the cost of additional financing may be significantly higher than our current debt.

Our material cash requirements and contractual obligations arising in the normal course of business primarily consist of operating lease commitments, non-cancelable purchase obligations, debt and related interest payments, and income taxes.

As of March 31, 2023, our material cash requirements and contractual obligations due within the next 12 months and in total consisted of the following (in millions):


	Amounts Due
	Next 12 Months		Total
Operating leases(1)	$	13.4	$	25.0
Non-cancelable purchase obligations(2)	245.9		544.2
2026 Convertible Notes(3)
Interest	7.2		25.2
Principal	—		1,437.5
2028 Senior Notes(4)
Interest	33.8		202.5
Principal	—		1,000.0
2031 Senior Notes(4)
Interest	36.3		326.3
Principal	—		1,000.0
Other(5)	40.7		40.7

(1) Lease payments due for corporate offices.

(2) Committed spend primarily relating to technology and advertising.

(3) Assumes the 2026 Convertible Notes are not converted into our Class A common stock, repurchased or redeemed prior to maturity.

(4) Assumes the 2028 and 2031 Senior Notes are not repurchased or redeemed prior to maturity.

(5) In January 2023, the NYDFS announced a consent order focused on historical shortcomings in Coinbase, Inc.’s compliance program. Pursuant to the consent order, Coinbase, Inc. paid a $50.0 million penalty in January 2023 and agreed to invest an additional $50.0 million in its compliance function by the end of 2024.

See Notes 10. Accrued Expenses and Other Current Liabilities, 11. Indebtedness, 16. Income Taxes and 18. Commitments and Contingencies of the Notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for further information relating to debt and income taxes as of March 31, 2023.

Cash flows


	Three Months Ended March 31,
	2023		2022

	(in thousands)
Net cash provided by (used in) operating activities	$	463,078	$	(91,356)
Net cash used in investing activities	(26,080)		(691,591)
Net cash provided by (used in) financing activities	460,129		(725,324)
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	897,127	$	(1,508,271)
Effect of exchange rates on cash, cash equivalents, and restricted cash	$	11,377	$	(5,507)
Change in customer custodial cash	$	314,277	$	(502,848)

Operating activities

Net cash provided by operating activities was $463.1 million for the three months ended March 31, 2023. Our net cash provided by operating activities reflected a net loss of $78.9 million, which included non-recurring losses from our reduction in force in January 2023 of $60.4 million relating to separation pay and other personnel costs. Our non-cash adjustments were $226.6 million, which was driven by stock-based compensation expense, realized loss on crypto futures contract, depreciation and amortization, crypto asset impairment expense and non-cash lease expense. This was partially offset by deferred income taxes and realized gains on crypto assets driven by net crypto assets received from operating activities. In addition to these changes were changes in operating assets and liabilities of $315.3 million, which was driven by reductions in corporate USDC to facilitate customer mints and burns.

Net cash used in operating activities was $91.4 million for the three months ended March 31, 2022. Our net cash used in operating activities reflected net loss of $429.7 million and non-cash adjustments of $412.6 million, which were driven by benefits from deferred income taxes and realized gains on crypto assets driven by net crypto assets received from operating activities. This was partially offset by stock-based compensation expense, crypto asset impairment expense, depreciation and amortization expense, non-cash lease expense and unrealized losses on foreign exchange. In addition to these changes were changes in operating assets and liabilities of $74.3 million.

Investing activities

Net cash used in investing activities of $26.1 million for the three months ended March 31, 2023 was due to $33.8 million in net outflow for institutional and consumer loans originated and repaid, $30.7 million in net cash paid in the One River acquisition, $15.2 million in capitalized internal-use software development costs and a $1.7 million outflow for the settlement of a crypto futures contract, net of collateral returned. This was partially offset by $57.6 million in net inflow for the sale and purchase of crypto assets.

Net cash used in investing activities of $691.6 million for the three months ended March 31, 2022 was due to $470.3 million in net outflow for the purchase and sale of crypto assets, $186.2 million in net cash paid in the Unbound Security and FairXchange acquisitions, $25.8 million in investments of companies and technologies and $9.1 million in capitalized internal-use software development costs.

Financing activities

Net cash provided by financing activities of $460.1 million for the three months ended March 31, 2023 was due to changes in customer custodial cash liabilities of $529.0 million, $31.6 million of proceeds received from the issuance of short-term borrowings, $8.9 million of proceeds from the issuance of common stock from stock option exercises, net of repurchases, and $4.6 million of proceeds received under our employee stock purchase plan. This was partially offset by $62.5 million of taxes paid related to net share settlements of equity awards and $52.1 million in repayments of short-term borrowings.

Net cash used in financing activities of $725.3 million for the three months ended March 31, 2022, was due to changes in customer custodial cash liabilities of $738.8 million, $141.8 million of taxes paid related to net share settlement of equity awards and a $20.0 million repayment of a short-term borrowing. This was partially offset by $149.4 million of proceeds received from the issuance of short-term borrowings, net of issuance costs, $16.9 million of proceeds from the issuance of common stock from stock option exercises, net of repurchases and $9.0 million of proceeds received under our employee stock purchase plan.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.

Except as described in Note 2. Summary of Significant Accounting Policies, of the Notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K which was filed with the Securities and Exchange Commission (the “SEC”) on February 21, 2023.

Recent Accounting Pronouncements

See Note 2. Summary of Significant Accounting Policies, of the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report.

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