Coinbase Poised for Growth: Bitcoin Driving Success and New Opportunities on the Horizon
Summary:
Coinbase's Q4 2023 financial report reveals a promising future for the company, primarily driven by Bitcoin trading. Technology expenses fell from the previous year, and net income and EBITDA are on an upward trajectory. As a custodian to most Bitcoin ETFs, Coinbase is expected to see growth despite falling general and institutional trading volumes. The launch of its 'Base platform' plans to disrupt the remittances market by reducing costs for consumers. With the inclusion of regulated derivatives trading and International Markets, Coinbase aims to tap into numerous opportunities in the rapidly evolving digital currency landscape.
On February 15, Coinbase released its 2023 Q4 financial summary and the future of the firm appears optimistic, largely due to bitcoin trading activities. The technology-related expenditure for the year 2023 fell by $1 billion compared to the previous year, and both net income and EBITDA of the firm are showing a positive trajectory. Despite the attention various cryptocurrencies garnered on Coinbase's platform until 2021, both general and institutional trading volumes have been falling for two years. But Bitcoin and Ethereum have emerged as the leading favorites in the crypto market, with Bitcoin maintaining a significant lead. However, the continued contribution of other cryptocurrencies to almost fifty percent of the company's trading revenue indicates high investor speculation.
Additionally, stablecoins have made a promising beginning on Coinbase's platform, accounting for nearly 22% of the annual revenues from subscriptions and services, which composed almost half of the total revenues of the company. Meanwhile, transactions from retail investors, which previously made up almost all of the company's revenues, now make up slightly less than half. Subscriptions and services, on the other hand, have seen a two-year period of solid growth, compensating for a drop in transactions. The declining growth trend of the custodial fees year-on-year suggests a loss of investor interest in cryptocurrencies, possibly due to higher conversion costs to fiat currency. However, the considerable trade volumes in the newly launched Bitcoin Exchange Traded Funds (ETFs) implies a promising outlook for cryptocurrencies as a potential investment option.
Since Coinbase is the custodian for eight out of the eleven Bitcoin ETFs, it is bound to receive a substantial boost as more investors buy into these ETFs. However, as these ETFs were approved and traded after January 10, they aren't included in this financial summary. While institutional custodial fees are lower than transaction fees, creating a trade-off, the company faces the challenge of competing with other emerging platforms in the Bitcoin ETF sector.
The robust speculation around non-Bitcoin and non-Ethereum cryptocurrencies due to their utility offers additional opportunities for Coinbase. In 2023, the firm opened International Markets, allowing various institutions to trade 15 different cryptocurrency futures contracts, thus generating nearly $10 billion in trade volume by Q3 2023. Coinbase also initiated regulated derivatives trading in the United States via Coinbase Financial Markets (CFM), with the potential to drive future growth due to their large size compared to spot markets.
In August 2023, Coinbase launched 'Base', an L2 blockchain built on Ethereum, to assist customers in efficiently converting their cryptocurrencies to fiat currency and vice versa. As described in the 2016 'Secret Master Plan' by Coinbase CEO, Brian Armstrong, the ultimate aim of Coinbase was to develop apps to support a variety of financial functions, including global remittances and loans. Through the Base platform, it plans to tap into the remittance market, which currently costs an average of 6.2% (12.1% for banks) to send $200. As the fourth largest L2 player in terms of total value locked (TVL) on Ethereum, amounting to $855 million, Base holds great potential. By leveraging a network of cryptocurrency, stablecoin, and Central Bank Digital Currency connections, Coinbase customers could benefit from access to cheaper remittances using other currencies.
In conclusion, Coinbase is standing at the brink of various opportunities in the near future, set to make the most of the evolving digital currency landscape. This analysis has been provided by Sandeep Rao, a senior researcher at Leverage Shares, former senior research associate at NASDAQ's Index R&D Team, and holder of an MS in finance and an MBA from the Illinois Institute of Technology. This is purely informational content and should not serve as legal or investment advice. The views and opinions stated belong solely to the author and don't reflect the perspectives or beliefs of Cointelegraph.
Published At
2/20/2024 8:51:58 PM
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