Despite a midday rise of over 4% to nearly $222 on Tuesday, Coinbase shares have been closely tracking broader cryptocurrency market trends. The company’s stock often mirrors the performance of digital assets due to its heavy reliance on trading fees, which made up 67% of its revenue in the first quarter.

On Monday, Coinbase’s trading volume was $788.3 million, a significant drop from the nearly $3.2 billion recorded on March 4. This decline in trading activity impacts the company’s profitability. According to Paul Gulberg, a senior equity analyst at Bloomberg Intelligence, the reduction in volume and the decline in asset prices from their first-quarter peak suggest that Coinbase will likely see lower profitability in the second quarter.

In the wider cryptocurrency market, Bitcoin, Ether, and Solana have each declined by around 11%, 9%, and 18% respectively over the past 30 days. These assets have struggled to regain momentum since mid-March, partly due to the poor performance of the 11 spot Bitcoin exchange-traded funds (ETFs) approved by the SEC in January. Since their launch, Bitcoin prices have fluctuated significantly, with substantial funds moving in and out of these ETFs. Data from CoinGlass indicates that the latest streak of net outflows began on June 10 and has persisted almost daily, totaling about $1.3 billion. This is the longest stretch of outflows since the ETFs were introduced.

These outflows directly affect Coinbase, as it acts as the custodian for eight of the 11 ETFs, earning a 0.2% fee. With fewer assets under custody, Coinbase’s revenue from these fees decreases. Additionally, Coinbase holds over $207 million worth of Bitcoin, making it the sixth-largest public company in terms of Bitcoin exposure. Shares of MicroStrategy, the largest holder of Bitcoin among public companies, have also dropped by about 8% since June 12

Gulberg points out that sentiment is a major factor in Coinbase’s recent stock decline. With many shares held by retail traders, Coinbase’s stock tends to rise when there is high activity and interest in the digital asset space and fall when interest wanes. This sentiment-driven volatility highlights how closely Coinbase’s performance is tied to the broader cryptocurrency market.