On February 15, Coinbase released its earnings report for the fourth quarter of 2023, indicating that the company is in a strong position for the coming year, thanks largely to Bitcoin trading. It’s worth noting that technology spending for 2023 was $1 billion lower than in 2022, while both the company’s net income and earnings before taxes, before tax deductions (EBITDA) show positive trends.
Until 2021, a diverse set of cryptocurrency assets competed for and won investors on the Coinbase platform. However, over the past two years, both retail (consumer) and institutional volumes have declined, while two dominant favorites have emerged in the cryptocurrency space: Bitcoin and Ethereum, with the former firmly in the lead.
Despite the dominance of Bitcoin and Ethereum, other cryptocurrencies remain the subject of intense investor speculation, as illustrated by the fact that they still contribute nearly half of the company’s trading revenue.
Stablecoins also had a very promising start on the Coinbase platform. In a year in which subscriptions and services accounted for nearly half of the company’s revenue, stablecoins alone accounted for 22%.
Investors’ retail transactions, which once accounted for almost all of the company’s revenue, now account for slightly less than half of total net revenue. Overall, subscriptions and services are showing strong upward trends over the two years, which quite effectively offset a two-year decline in transactions.
Curatorial fees are charged when cash balances held in the accounts of cryptocurrency investing clients are pooled and invested in US Treasury bonds or money market funds as insurance. Declining annual trends in curatorial fee increases indicate that cryptocurrencies are losing popularity among investors, which may be due to the fact that they are not easily convertible into fiat currencies without significant costs.
However, the impressive volume trends currently observed in the markets for the newly launched bitcoin ETFs indicate strong future prospects for cryptocurrencies as investments. On most days since their launch, daily volumes in these ETFs have exceeded $1 billion. Given that Coinbase has curated eight of the eleven bitcoin ETFs launched, it is likely to see significant growth as more investors invest in these ETFs. Nevertheless, since these ETFs were approved and began trading after January 10, they will not be included in this earnings report.
However, one of the significant challenges that Coinbase will face in the bitcoin ETF market will be a strong incentive for other exchanges to enter the market with their own curated platforms. How the company will respond to this challenge remains to be seen, but it is very likely that there will be significant announcements in the coming year.
An ancillary factor running through the intense speculation surrounding cryptocurrencies that are not Bitcoin or Ethereum is their utility. This speculation creates additional opportunities for the company. In May 2023, the company launched „International Markets” for selected international clients, where more than 100 institutions traded 15 future contracts for various cryptocurrencies, generating about $10 billion in trading volume by the third quarter of 2023.
In November, Coinbase Financial Markets (CFM) launched a regulated derivatives platform for use in the US market. Currently, derivatives markets tend to be much larger than local markets: as time goes on and the eligibility criteria for participation become clear, it is likely that derivatives will become another driver of volume and growth for the company.
„Base” platform
The company’s„Base” platform was also launched in August. It is the second-level (L2) layer of the blockchain built on Ethereum, and its goal is to help Coinbase customers efficiently convert their assets into fiat currencies (such as the US dollar) and vice versa for real-world use.
In 2016, Brian Armstrong, CEO of Coinbase, outlined in the company’s „Secret Master Plan,” where the latest phase was to enable the creation of applications to facilitate everything from investments to loans and global remittances. Money transfer itself is already an opportunity-rich environment: in a market where several hundred billion dollars are sent across borders each year by foreign workers and global corporations, the average cost of sending $200 was 6.2% (with the average for banks around 12.1%) in the second quarter of 2023.
The „Base” platform has significant public utility and is currently the fourth-largest player in the L2 market in terms of total blocked value (TVL) on Ethereum, at $855 million.
With more exposure to international markets, there is a possibility that Coinbase customers can unlock significant benefits through its network of cryptocurrencies, stablecoins and apps that connect to the central bank digital currency networks (CBDCs) currently operating in Japan, India and China to obtain (for example) cheaper remittances through their respective networks with other currencies. Overall, Coinbase is well positioned to take advantage of numerous opportunities in the near future.
