According to Coinbase’s quarterly earnings report, which was published last week, the business is in a strong position to take advantage of several expanding revenue sources.
Coinbase’s earnings report for the fourth quarter of 2023 was released on February 15. Based mostly on Bitcoin trading, it is evident that the company is well-positioned to play a prominent role in the coming year.
In 2023, the company’s technological expenses amounted to $1 billion less than those of 2022, and its earnings per share (EBITDA) is increasing.
On the company’s platform, a wide range of cryptocurrency assets competed for (and attracted) investor attention until 2021.
While consumer (retail) and institutional volumes have been declining over the last two years, two clear front-runners in the cryptocurrency space have emerged: Ethereum and Bitcoin, with the former leading by a considerable margin.
The fact that other cryptocurrencies still account for almost half of the company’s transaction revenues indicates that they are still the subject of significant investor curiosity.
Additionally, stablecoins had a very positive beginning on the Coinbase platform.
Stablecoins alone accounted for 22% of the company’s income in a year where subscriptions and services made up nearly half of the total.
Previously making up almost all of the company’s revenue, retail investor transactions now make up just under half of net revenue.
Subscriptions and services have generally showed robust two-year growth trends that conveniently offset two-year dips in transaction volume.
Custodial fees are made when cash balances retained by client accounts investing into cryptos are pooled and invested into U.S.
Treasuries or money market funds as insurance. Year-on-year dropping custodian fee growth trends is a hint that cryptocurrencies were losing popularity among investors, which might be attributed to the fact that they aren't easily converted to (or "fungible with") fiats without considerable cost.
Nonetheless, the robust volume patterns observed in the newly introduced Bitcoin ETFs this year suggest that cryptocurrencies have a bright future ahead of them as an investment.
Since these ETFs launched, daily volumes have exceeded $1 billion in the majority of those days. Coinbase is the custodian of eight of the eleven Bitcoin ETFs that have been introduced, thus as more and more investors purchase the ETFs, it is expected to see a large increase.
Nevertheless, these ETFs will not be included in this earnings announcement because they were approved and traded after January 10.
There will be future trade-offs between institutional custodial costs and transaction fees because the former are less expensive than the latter.
The fact that other exchanges now have a strong incentive to enter the market with their own custodial platforms presents Coinbase with a serious challenge in the Bitcoin ETF market.
It’s unclear how the business will handle this difficulty at this time, but big announcements are probably in store for the coming year.
One of the main reasons for the fervent speculation surrounding cryptocurrencies other than Bitcoin and Ethereum is probably utility.
The corporation now has more opportunities as a result of this conjecture. Approximately $100 billion in trading volume was generated by over 100 institutions through the trading of 15 perpetual futures contracts on several cryptocurrencies by the business, which it opened for select international customers in May 2023.
Coinbase Financial Markets (CFM) started offering regulated derivatives for sale in the US market in November.
Derivatives markets are now often much larger than spot markets; as time goes on and eligibility for participation is clarified, derivatives will probably become the company’s next major source of volume and growth.
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In August, the business launched its Base platform online as well. Base is an Ethereum-based layer-2 (L2) blockchain designed to facilitate the fast conversion of Coinbase users’ holdings to and from fiat currencies (such US dollars) for use in everyday transactions.
“Coinbase CEO Brian Armstrong envisioned a future where developers could craft apps facilitating a myriad of financial services, from loans and investments to international transfers, as outlined in the company’s ‘Secret Master Plan’ of 2016.”
Remittances alone provide a target-rich environment: as of the second quarter of 2023, the average cost to send $200 was 6.2% (with banks charging an average of roughly 12.1%), in a market where hundreds of billions of dollars are sent annually by overseas workers and multinational firms.
With $855 million in total value locked (TVL) in escrow, Base is currently the fourth-largest L2 player on Ethereum in terms of public utility.
Increased exposure to foreign markets may enable Coinbase’s clients to gain substantial advantages through a network of stablecoins, cryptocurrencies, and apps that link to central bank digital currency (CBDC) networks currently operated in China, Japan, and India.
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These networks could then provide access to other currencies, such as more affordable remittances, through their respective networks.
All things considered, Coinbase is in a good position to take advantage of many opportunities in the rapidly approaching future.
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