After disclosing better-than-expected financial results in its fourth-quarter earnings report, U.S.-based Coinbase has big plans.
The second-largest crypto exchange told its investors that it intends to lean heavily on its work with the popular USDC stablecoin this year, lever its recently launched layer-2 blockchain Base as a way to experiment with and improve blockchain utility and promised to keep up its regulatory work on behalf of itself and the larger web3 industry. All while a bull market and institution inflows are coming back to play.
Coinbase’s strong fourth-quarter results come after a return to form for the crypto industry itself, which spent much of 2023 mired in a downturn. As last year came to a close, trading activity rose and the start of 2024 came with a critical regulatory win regarding spot bitcoin ETFs that could provide Coinbase and its peers with a strong start to the year.
Overall, total crypto market capitalization has increased 14% over a seven-day period to $1.96 trillion, the highest level since April 2022 before the Terra LUNA collapse. With the recent growth in the crypto market, many market players also expected Coinbase’s trade-based revenue to also rise — and it did.
In the fourth quarter, Coinbase generated $529.3 million worth of “transaction,” or trading, revenue, with $492.5 million coming from retail activity and $36.7 million from institutional traders. The total figure was up 83.4% from $288.6 million in the third quarter.
Even though it’s looking bright, the exchange’s total trading revenue is still down 44% year-over-year as the market climbs its way back up to bull market levels.
Financial results
In Q4 2023 Coinbase generated revenue of $953.8 million, far surpassing the $629.1 million generated in Q4 2022. It also handily topped the $674.1 million in revenue it posted in the third quarter of last year. The company’s reported figures trounced expectations, which included revenue just north of $820 million.
Earnings came in at $1.04 per share on $275.7 million in net income, well ahead of expectations of $0.02 per share.
Tailwinds
Coinbase could surpass its strong Q4 results in the first quarter of 2024, a period that included regulatory wins, including the approval and launch of a host of spot bitcoin ETFs that lean on the company to custody their digital assets. (As they accrete more AUM, Coinbase’s custody business should expand linearly with those inflows.)
But Coinbase is also the custodian for eight of the 11 spot bitcoin ETF issuers, meaning it’s also finding cash flowing from that avenue. And the more the spot bitcoin ETF market grows, the more chance Coinbase has to earn. (The company is bullish on the matter, calling the SEC’s approval of spot bitcoin ETFs “a watershed moment for the expansion of the cryptoeconomy.”)
Through February 13th, its earnings document notes that the company recorded “approximately $320 million” worth of transaction revenue, putting it on pace for a roughly $640 million to $650 million pace for the quarter. With subscription and services revenue estimated “within a range of $410-480 million” for the current quarter, Coinbase could surpass $1 billion in quarterly revenue for the first time in many quarters.
With more demand for its custody product in the offing, trading fees climbing and crypto prices regaining much of their prior vigor, Coinbase is on far stronger footing than it was a year ago. At the same time, there are some potential headwinds on the horizon for the company. Coinbase, like many fintech players, has benefited greatly from a rise in interest rates, which bolstered the value of reserves held by USDC, and the income provided by its own cash reserves. Interest rates in Coinbase’s domestic market are expected to moderate this year, which could limit growth in interest-based incomes at the company. There’s also a chance that some consumers will turn to ETF products instead of purchasing bitcoin through Coinbase directly, which could lead to some unevenness in its trading incomes.
Still, Coinbase set out to generate positive adjusted EBITDA even during a lengthy market downturn. It did that, and is now heading back into growth territory as a slimmed company. That’s hardly a bad place to start the year, and provides a bit of warmth for an industry that just mired through an extended winter.