Despite the challenges, Coinbase’s earnings suggest a strong year ahead
Coinbase released its earnings report for the fourth quarter of 2023 on February 15, and it's clear that the company is poised for a dominant role in the coming year, thanks mainly to Bitcoin (BTC) trading. Technology spending for 2023 was $1 billion less than 2022, and the company's net income and earnings (EBTA) are trending positive.
In the year By 2021, they were looking for a large variety of crypto assets to gain the attention of investors on the company's platform. In the last two years, while both consumer (retail) and institutional volumes have been shrinking, two main favorites have emerged in the cryptocurrency space: Bitcoin and Ethereum (ETH), the former with some marginal future.
Investor expectations are high as other cryptocurrencies continue to contribute about half of the company's trading revenue.
Stablecoins also had a very encouraging start on the Coinbase platform. Stablecoin alone accounted for 22 percent of the company's revenue in a year when subscriptions and services accounted for nearly half of the company's revenue.
Retail investor transactions, which used to account for almost all of the company's revenue, now account for less than half of net income. In general trends, subscriptions and services have shown strong two-year growth trends, handily offsetting two-year sales declines.
Related: Low Bitcoin ETF Fees May Be Bad News for Coinbase
Retention fees are earned when cash balances deposited into cryptos in customer accounts are pooled and deposited into US Treasuries or money market funds as insurance. Declining retention fee growth trends are a sign that cryptocurrencies are losing traction among investors, as they are not easily converted to (or “with”) fiats without incurring significant costs.
However, a strong future outlook for cryptocurrencies as an investment is indicated by the high volume trend seen in the recently launched Bitcoin ETFs this year. On most days since their inception, daily volume in these ETFs has exceeded $1 billion. As Coinbase is the custodian of eight of the 11 Bitcoin ETFs launched, it will witness significant growth as more and more investors buy into ETFs. However, since these ETFs were approved and purchased after January 10th, they are not counted in this earnings release. Institutional protection fees are lower than transaction fees; So there will be some business relationship going forward between the two.
However, one significant challenge Coinbase faces in the Bitcoin ETF market is that other exchanges with their own escrow platforms now have a strong incentive to enter the market. It is not yet clear how the company will respond to such a challenge, but it can be assumed that there will be some significant announcements in the coming year.
Related: 2024 Will Be the Biggest Year in Ethereum Network's History
Utility is probably one of the reasons behind the high speculation surrounding cryptocurrencies that aren't Bitcoin or Ethereum. This assumption creates more opportunities for the company. In the year In May 2023, the company introduced “Global Markets” to select global clients, where 15 sustainable futures contracts on various cryptocurrencies are traded by more than 100 institutions to generate approximately $10 billion in trading volume by the third quarter of 2023.
In November, Coinbase Financial Markets (CFM) began developing a platform for trading derivatives in the US market. Now, derivatives markets will be much bigger than spot markets: as time progresses and participation eligibility is clearly defined, derivatives may become the next driver of volume and company growth.
‘Base' platform
The company's base platform also went online in August. Built on Ethereum's layer-2 (L2) blockchain, Base aims to help Coinbase customers convert their holdings to and from fiat (such as the US dollar) for real-world use.
In the year In 2016, Coinbase CEO Brian Armstrong revealed in the company's “Secret Master Plan” that the company's final phase was to build applications aimed at facilitating everything from investments to loans and international remittances. Money transfer alone is a target-rich area. A market where hundreds of billions of dollars a year are transferred by expatriate workers and international corporations, it will cost an average of 6.2% to send $200 (banks average 12.1%) from the second quarter of 2023.
There is significant public utility for Baez, which at the time of writing is the fourth largest L2 player with $855 million in total value locked on Ethereum (TVL).
With global market exposure, Coinbase customers can unlock significant benefits by connecting to central bank digital currency (CBDC) networks with cryptocurrencies, stablecoins and applications operating in Japan, India and China (for example). It is sent cheaply with other currencies through their respective networks. Overall, Coinbase is well positioned to take advantage of many opportunities in the near future.
Sandeep Rao is a senior quantitative researcher at Leverage Shares. He previously worked as a senior research associate for Nasdaq's Index R&D team. He holds degrees in finance and an MBA from the Illinois Institute of Technology.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
