Crypto Is Changing: Where Is the Money Going?

Crypto companies are finding new ways to grow, but Bitcoin and Ethereum are not seeing the same strength in investor demand. Coinbase (NASDAQ:COIN) and Robinhood (NASDAQ:HOOD) reported rapid growth in prediction markets, while Strategy’s Bitcoin purchases slowed and spot ETFs ended last week with net outflows. So where is the money going, and what does it mean for the crypto market?

Summary

• Trading platforms are growing beyond crypto. Robinhood’s event contract revenue reached $173M in Q3, exceeding its crypto trading revenue of $120M. Coinbase’s prediction market business also passed $200M in annualized revenue, although both stocks fell following their earnings reports.
• Institutional buying has slowed. BTC ETFs ended last week with $202M in net outflows, while ETH ETFs lost $431M. Strategy’s weekly BTC purchases have dropped to just a few hundred coins, compared with thousands earlier this year.
• Crypto companies are finding new revenue sources. Galaxy earned $69M in adjusted EBITDA from its data center business in Q3. AI infrastructure is becoming another source of growth, even as demand for BTC and ETH remains under pressure.

Trading Beyond Crypto: Is Wall Street Buying It?

Crypto trading slowed in Q3. Marketwide spot volume fell 6% from Q2, derivatives volume dropped 11%, and average volatility declined 15%, based on Coinbase’s latest earnings report.

Robinhood (⁠HOOD-USDT)’s crypto trading revenue fell 55% year over year to $120M, with trading volume down 38% to $50B. Its event contracts business, however, brought in $173M, surpassing crypto trading revenue for the quarter. Event contract volume also grew more than sevenfold from a year earlier.

Coinbase (⁠COIN-USDT) reported similar growth in prediction markets. Since launching in February, the business has reached more than $200M in annualized revenue, with an 82% quarterly compound growth rate. Daily active traders increased more than 60% from Q2.

Coinbase also gained crypto trading market share for the fourth consecutive quarter, reaching 10.7%. Subscriptions and services contributed 49% of net revenue.

Yet Wall Street’s reaction to both earnings reports was far less encouraging.

Coinbase reported Q3 EPS of $2.51, far above some forecasts that had expected a loss. But much of its $719M net profit came from unrealized gains on crypto investments, while quarterly revenue fell 35% year over year. COIN shares declined in the first trading session after the earnings release.

Robinhood reported record quarterly revenue of $1.42B, but missed earnings expectations. HOOD shares also fell after the results were released.

Several analysts cut their price targets for both companies, while others kept their positive ratings. Coinbase’s earnings came in far above some forecasts, showing just how difficult it can be for Wall Street to value crypto stocks accurately. With new businesses like prediction markets growing so quickly, analysts are still working out how much these businesses are worth and how much profit they can generate.

Is Institutional Bitcoin Demand Slowing?

US spot Bitcoin ETFs ended the final week of October with $202M in net outflows. The week started with $441M in inflows, but a $643M withdrawal on Friday wiped out those gains. ETH ETFs lost another $431M over the same period, extending the outflow trend seen throughout much of October.

Strategy (NASDAQ:MSTR) (⁠MSTR-USDT)’s Bitcoin purchases have also slowed sharply. In January and February, the company made weekly purchases of [early-year examples to verify] BTC, compared with just 334, 250 and 267 BTC in three weeks of October. Strategy now needs to balance new BTC purchases with preferred dividends and share repurchases, leaving less capital available for accumulation than earlier this year.

Ethereum faces a similar problem. ETH ETFs saw persistent outflows through October, while Bitmine (NYSE:BMNR) is working toward its goal of owning 5% of Ethereum’s total supply. A slower pace of buying from BitMine would leave ETH with less support from one of its major corporate buyers.

Crypto’s Next Growth Beyond Digital Assets

Galaxy Digital (NASDAQ:GLXY), a crypto financial services company, returned to profit in Q3 with $323M in net income. Its data center business contributed $69M in adjusted EBITDA.

The company’s investment portfolio remained a major contributor to earnings, but AI infrastructure is starting to play a larger role. Galaxy has converted its former Bitcoin mining facility, Helios, into a data center serving AI computing demand.

For Galaxy, the appeal is a more predictable source of revenue through long-term data center leases, rather than relying entirely on crypto market activity. The tradeoff is greater exposure to AI infrastructure spending, construction costs and the demand for computing capacity.

Looking at Coinbase, Robinhood and Galaxy together, crypto companies are finding ways to grow beyond their original businesses. Yet BTC and ETH ETF flows, along with Strategy’s slower purchases, tell a different story about demand for digital assets. Stronger earnings across crypto-related companies have not necessarily brought stronger buying demand for Bitcoin and Ethereum.

Week Ahead

• Nov 3: Q3 Earnings AMD (AMD-USDT)

• Nov 3: US Midterm Elections

• Nov 4: Q3 Earnings Circle (⁠CRCL-USDT)

• Nov 6: US October Nonfarm Payrolls

Q3 earnings from AMD (NASDAQ:AMD), and Circle (NYSE:CRCL) will be closely watched, especially after Google and Intel saw their shares plunge more than 10% and 20%, respectively, following last week’s earnings reports.

The US midterm elections could bring new policy signals that influence market expectations, while the October jobs report may shift the odds of another Fed rate hike in December.

Disclaimer: The information provided herein does not constitute investment advice, financial advice, trading advice, or any other sort of advice, and should not be treated as such. All content set out above is for informational purposes only.

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