Coinbase (ticker: COIN) debuted on NASDAQ on April 14, 2021, peaking at $428 before declining below $100. With its Q3 earnings report released last week, we analyze whether Coinbase remains a viable investment. Here’s our breakdown.
Financial Performance: Can Coinbase Sustain Profitability?
As a crypto exchange, Coinbase generates revenue primarily through trading fees. During the 2021 bull run, trading volume soared to $1.6 trillion**, but dropped to **$800 billion in 2022 and $313 billion year-to-date in 2023. Despite this downturn, Coinbase has diversified its income streams:
- Trading Fees (Blue in chart): Declined with lower crypto activity.
- Subscription & Services (Yellow): Includes custodial fees, stablecoin revenue, and blockchain rewards—now contributing ~50% of net revenue.
This strategic shift highlights management’s foresight in preparing for bear markets while positioning for future bull runs.
Cost Management and Financial Health
Coinbase has slashed operating expenses from $10B (2021)** to **$2.4B (2023), despite doubling its workforce to 3,427 employees. Key financial metrics:
- Near break-even Q3 2023: Net loss narrowed to $2M.
- $5.5B liquidity reserve: Ensures operational stability.
- Debt reduction: Repurchased $263M** in senior notes for **$177M, strengthening its balance sheet.
Growth Strategy: Coinbase’s Three Pillars
Pillar 1: Advancing Crypto as an Asset Class
Coinbase prioritizes compliance, securing banking partnerships (unlike competitors like Binance). Recent milestones:
- Regulatory approval for leveraged crypto futures trading in the U.S.
- Advanced Trading Platform: Potential to capture futures market share as competitors exit regulated markets.
👉 Explore Coinbase’s Advanced Platform
Pillar 2: Modernizing Finance with Crypto
- USDC Partnership: Coinbase earns fees from stablecoin activity across multiple blockchains.
- Marketing: Highlights inefficiencies in traditional finance, positioning crypto as a faster, cheaper alternative.
Pillar 3: Powering the Decentralized Internet
- Base Layer 2 Blockchain: Launched in August 2023, Base ranks 3rd in fee revenue among Layer 2s ($7.4M to date).
- Monetization Potential: No token issued—value may accrue directly to COIN stock.
Bitcoin ETF Custodianship: A Hidden Opportunity
Coinbase is named custodian in six Bitcoin ETF filings (BlackRock, ARK Invest, etc.). Potential revenue:
- 0.1% custody fees on hundreds of billions in ETF assets.
- Long-term upside: Positions Coinbase as infrastructure provider in a crypto ETF boom.
Technical Analysis: COIN Stock Trends
- Weekly chart shows higher lows since early 2023.
- 50-week SMA now acts as support, suggesting a bullish trend.
- Volatility warning: Short-term drops are likely, but long-term momentum appears positive.
Verdict: Should You Invest in Coinbase?
Pros:
- Diversified revenue beyond trading fees.
- Regulatory compliance as a competitive edge.
- High-growth potential in ETFs and blockchain infrastructure.
Cons:
- Profitability hinges on crypto market cycles.
- Regulatory risks persist.
Author’s Note: As a long-term crypto investor, I hold COIN shares. However, this aligns with my bullish outlook—avoid if you’re skeptical of crypto’s future.
Key Takeaways
- Revenue Resilience: 50% of income now from non-trading sources.
- Cost Efficiency: Expenses cut by 76% since 2021.
- Strategic Bets: Futures trading, USDC, and Base blockchain expand addressable markets.
- ETF Catalyst: Custodianship could unlock millions in annual fees.
FAQ Section
Q: How does Coinbase make money beyond trading fees?
A: Subscriptions (custodial services, stablecoins) and blockchain rewards.
Q: Is Coinbase financially stable?
A: Yes—$5.5B liquidity and reduced debt mitigate bear market risks.
Q: What’s the outlook for COIN stock?
A: Long-term bullish if crypto adoption grows; volatile short-term.
Q: Why is Coinbase the preferred ETF custodian?
A: Compliance reputation and existing infrastructure.
Disclaimer: Not financial advice. Conduct your own research.
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About the Author: Jonathan Hobbs, CFA, is a former crypto fund manager and author of three investment books. Ex-Morgan Stanley and HSBC.