Coinbase says $2.9 billion Deribit deal will improve earnings at the same time as revenue drops in Q1

Coinbase just pulled off the biggest acquisition of a crypto firm in industry history. On Thursday, the U.S.’s largest crypto exchange announced that it would pay $2.9 billion for Deribit, a derivatives platform that lets traders bet on the future prices of cryptocurrencies like Bitcoin.

Executives predicted that the acquisition was going to be a boon for Coinbase’s bottom line as the company continues to diversify its revenue. “It’s been consistently profitable,” Emilie Choi, the exchange’s COO, said on a Thursday earnings call, in reference to Deribit. “It strengthens our business by giving us market leadership within options, which we expect to grow, and enhances the profitability.”

But Coinbase’s predictions of enhanced profitability coincided with a steep drop in profits in the first quarter. Its net income plummeted quarter-over-quarter by 95% to $66 million as crypto trading volume on the platform declined.

And the exchange saw a 10% quarter-over-quarter decline in net revenue to $1.96 billion, falling short of analysts’ expectations. Its earnings-per-share of 26 cents was far below the consensus of $1.93, according to the Wall Street Journal, and Coinbase’s stock dropped 3% in after-hours trading.

Feast and famine

Coinbase’s business is often feast-and-famine, riding high as crypto trading volumes increase and shrinking fast when trading volumes subside. Its profits similarly wax and wane, from net losses during the crypto winter of 2022 and 2023 to a near-record $1.3 billion gain in the fourth quarter of 2024. 

But even within the crypto market, Coinbase’s revenue is specialized. Much of it comes from spot crypto trading in the U.S., or traders in the U.S. buying and selling cryptocurrencies based on current prices. Deribit, however, caters exclusively to non-U.S. customers and lets them trade derivatives, financial products that let investors speculate, with leverage, on the future prices of cryptocurrencies. 

Coinbase has shied away from launching derivatives in the U.S. because of crypto’s historically unfavorable regulatory status among American regulators. But, the crypto exchange has made moves to establish a footprint internationally. In 2023, it opened a subsidiary in Bermuda to cater towards a non-U.S. audience.

Its acquisition of Derbit is one of its biggest initiatives far to diversify its revenue in its crypto trading vertical. 

Coinbase has been seeking to do the same in other parts of its business. In its first-quarter earnings report, the exchange continued to improve what it calls its “subscriptions and services revenue” by 8% to almost $700 million. The category comprises the money it makes from the interest it reaps on the reserves backing USDC, a stablecoin managed by Coinbase partner Circle. It also includes revenue from its own blockchain Base as well as the fees it nets from custodying customers’ assets.

“We expect Derebit to immediately enhance our profitability and add diversity and durability to our trading revenues,” Alesia Haas, Coinbase’s CFO, said at the end of her prepared remarks on Thursday’s earnings call. 

This story was originally featured on Fortune.com