Overall spot trading volumes on crypto exchanges ticked higher during the first quarter as crypto prices soared, according to The Block's Data Dashboard. Coinbase's fluctuated during the period and TD Cowen analysts noted that the exchange's average daily spot volume per month continues to trend lower. 

Spot trading volume on Coinbase came in at $49.4 billion in March, down 46% from the $91.8 billion in a year-ago period, according to The Block's data.

"We think the regulatory crackdown on crypto banking in the U.S. (24/7 transaction support networks at Signature and Silvergate) could be playing a role here," TD Cowen analysts led by Stephen Glagola said. 

Needham estimates trading volume remained flat quarter on quarter, which would be the first time since the crypto winter began that the exchange's quarterly volume did not decline.

"This gives us optimism that retail volume could have bottomed. Additionally, alt-coin trading as a percent of total trading volume on Coinbase has increased, indicating increased retail risk-taking in crypto," Needham's preview note read. 

USDC interest income

The decline in the circulating supply of USDC and the stablecoin's own banking issues during the first quarter, as it de-pegged following the collapse of Silicon Valley Bank, may impact Coinbase's bottom line going forward. 

USDC total supply, source: The Block

"The de-peg may have ignited a confidence crisis, and yes, the lower circulating supply (e.g. USDC market cap) is likely to have an impact on 2023 earnings," Ryan Coyne, a senior associate at Mizuho, told The Block. 

Coinbase's interest income payout is determined by the following formula, based on its revenue-sharing agreement with Circle.

"So given that COIN’s interest income is derived on a TTM basis, the recent decline in USDC in circulation will have a lagged impact," Coyne said. It may modestly impact 1Q results but will have a more outsized impact as the year progresses, Coyne concluded.

Needham's John Todaro echoed Coyne's comments, noting the de-peg happened at the end of the quarter. Todaro said Needham expects lower interest income for Q2 2023. "This should partially be offset if we get 1-2 more rate hikes."

Mizuho lowered its price target for Coinbase to $27 from $30, citing muted trading volumes and the sharp decline in USDC market cap as "likely to weigh on transaction revenue and interest income."

Shares in the exchange were trading at $49.13 around 12:30 p.m. ET, down 4.2% since the open, according to TradingView data.