Coinbase Global: A Smart Investment Move?

Coinbase Global (COIN) is a leading cryptocurrency exchange that allows users to buy, sell, and store cryptocurrencies and, more recently, NFTs. It is one of the largest cryptocurrency trading platforms in the world, with a $330 billion-dollar asset base and 110 million verified users as of Q4 2022. Coinbase has become the standard bearer for the crypto industry in the U.S. and is expanding globally. Coinbase's revenue model has evolved from being heavily reliant on transaction fees to now including a Subscriptions and Services segment, which includes stablecoin revenue, blockchain rewards, interest income, and more. Coinbase's stock has been volatile, and investors are wondering if it is a good investment.

Coinbase's revenue model

Coinbase's fees are structured in a tiered commission system, meaning the amount charged varies by location and total transaction volume. For example, if the total transaction amount is $100 or less, Coinbase charges a flat fee of $2.99.

Coinbase also offers Coinbase Pro and Prime, which are aimed at professional traders and institutional clients. These platforms offer additional features such as advanced filtering options, real-time market data access, and insurance protection for digital assets. Coinbase uses a maker-taker fee model for determining its trading fees on these platforms.

In addition to trading fees, Coinbase generates revenue from its Coinbase Card, a Visa debit card that allows users to spend their cryptocurrencies in the real world. The company earns interchange fees whenever a customer uses this card for payments.

Coinbase also lends out cash residing in user accounts to other institutions and collects interest, similar to traditional banks. They also offer personal loans to users, with cryptoassets as collateral, and earn interest on these loans.

The company has expanded its revenue streams beyond trading fees by offering a range of products and services to both consumers and businesses. This includes educational courses, where users can earn cryptocurrency rewards, and Coinbase Commerce, which provides tools for businesses to accept digital currency payments.

Coinbase's international expansion strategy

As part of its international expansion strategy, Coinbase has been working with high-bar global regulators to develop additional solutions and products that adhere to high standards of customer protection and robust risk management frameworks. The company's recent approval of a regulatory license from the Bermuda Monetary Authority (BMA) is a significant step in its international expansion strategy. The BMA is known for its high level of transparency, compliance, and cooperation, and its close relationships with other regulatory agencies worldwide.

Coinbase International Exchange, the company's international arm, will enable institutional users based outside the US to trade perpetual futures. Perpetual futures accounted for nearly 75% of the global crypto trading volume in 2022, and by launching this international exchange, Coinbase aims to make its trusted products and services more accessible to users of digital assets worldwide.

In summary, Coinbase's international expansion strategy is focused on bringing its trusted products and services to a global audience, partnering with high-bar global regulators, and making its platform more accessible to institutional users based outside the US. The company's recent expansion into Bermuda and the launch of Coinbase International Exchange are significant steps in its international growth strategy.

Coinbase's exchange business

However, Coinbase's growth rate has been impressive. Its revenue surged 144% to $1.28 billion in 2020 and then skyrocketed 545% to $7.36 billion in 2021. This growth was driven by three key metrics: monthly transacting users (MTUs), trading volume, and total assets stored across its platform, all of which soared by triple digits in 2021.

Coinbase's sequential growth has been bumpy, with declines in MTUs and trading volume in the third quarter of 2021. However, its MTUs and trading volumes rose sequentially in the fourth quarter as cryptocurrency trades accelerated worldwide.

The company's revenue primarily comes from cryptocurrency transactions, specifically trading fees. In the fourth quarter of 2023, consumer trading volume jumped 164% quarter-over-quarter, leading to a 50% year-over-year increase in net revenue to $905 million. This impressive performance continued into 2024, with Coinbase's exchange business winning back market share and currently holding the number two position globally behind Binance. Revenue in the exchange business jumped 64.3% to $529.3 million in the fourth quarter of 2023.

Coinbase has transformed its revenue model and successfully implemented an international expansion strategy. The company has diversified its revenue streams, with its Subscriptions and Services segment generating more than $334 million in the last quarter, or roughly 53% of total revenue. This segment includes stablecoin revenue, blockchain rewards, interest income, and more.

The company has also kept expenses under control while introducing new products and expanding globally. Coinbase's expenses have reached their lowest levels in nearly three years, and the company has roughly tripled its customer base in the past year through its "Go Broad, Go Deep" international expansion strategy.

In summary, Coinbase's exchange business has shown impressive growth and recovery, with a strong performance in 2023 and continued momentum into 2024. The company has diversified its revenue streams and successfully expanded globally, positioning itself well for future growth.

Coinbase's stablecoins

The international expansion strategy, "Go Broad, Go Deep", has also contributed to the success of Coinbase's stablecoins. The company has expanded its presence in the European Union, the United Kingdom, Singapore, Canada, Brazil, and Australia, tripling its customer base in the process. This expansion has allowed Coinbase to access more well-defined and conducive legal landscapes for cryptocurrency operations.

Overall, Coinbase's stablecoins have provided a more stable and diversified revenue stream for the company, contributing to its growth and resilience in the volatile cryptocurrency market. With their broad adoption and multiple use cases, Coinbase's stablecoins have become an essential part of the company's business model and global expansion strategy.

Coinbase's customer service

Coinbase has recently diversified its revenue streams and expanded globally, making it a more robust and resilient platform. In its early days, most of Coinbase's revenue came from transaction fees, which constituted 90% of total revenue. However, after the crypto crash in 2022, Coinbase introduced a new Subscriptions and Services segment, which now makes up 53% of total revenue. This segment includes stablecoin revenue, blockchain rewards, interest income, and other products.

Coinbase has also managed to keep its expenses under control by implementing cost-cutting measures such as automation and staff reductions, as well as embracing remote work and consolidating its real estate footprint. As a result, the company's expenses have reached their lowest levels in nearly three years.

Coinbase's international expansion strategy, "Go Broad, Go Deep", has been a success, tripling its customer base in just one year. The company has focused on solidifying its presence in the European Union, the United Kingdom, Singapore, Canada, Brazil, and Australia, where the legal landscape is more favourable for cryptocurrency operations.

Despite facing regulatory headwinds and a bumpy sequential growth pattern, Coinbase has shown remarkable resilience and a commitment to long-term growth.

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