Snapshot

As the digital economy embraces the transformative power of cryptocurrencies, pioneers are shaping the way people and businesses engage with digital financial systems as they focus on making the cryptoeconomy accessible, secure, and user-friendly.

At the forefront of this evolution, Coinbase is developing reliable, straightforward technologies and financial infrastructure that allows people to interact with crypto assets and decentralized applications.

In addition to being a cryptocurrency exchange, it provides an integral infrastructure layer for a wide array of crypto-powered technologies like self-custody wallets, decentralized apps, and open community platforms, serving consumers, institutions, and developers. The company is also expanding access to a diverse range of crypto assets.

Coinbase positions itself as the primary crypto account for retail consumers, for which its client base spans over 100 countries, as it offers both a custodial solution through the Coinbase application and a self-custodial solution via Coinbase Wallet.

Navigating through a volatile and cyclical cryptoeconomy, Coinbase has experienced several major price cycles since 2010. Despite these challenges, the company remains focused on expanding its product offerings, enhancing its technological infrastructure, and exploring strategic partnerships. Their goal is to maintain a leading position in the rapidly evolving cryptoeconomy and web3 space, continuing to innovate for their diverse customer base and adapt to the changing regulatory backdrop.

Background

Coinbase’s journey began in 2012 when Brian Armstrong, a former Airbnb engineer, founded the company. With a US$150,000 investment from the Y Combinator start-up incubator program, Armstrong set out to create a platform that would redefine how individuals and businesses interact with cryptocurrencies. Fred Ehrsam, a former Goldman Sachs trader, also joined as a co-founder.

Coinbase launched its service to buy and sell Bitcoins through bank transfers, marking its first foray into the burgeoning world of cryptocurrency. The company’s growth accelerated rapidly as it secured millions in funding and reached one million users within two years. It acquired the blockchain explorer service Blockr, and the web bookmarking company Kippt, secured insurance for bitcoin stored on its servers, and also launched a vault system for secure Bitcoin storage.

Partnerships with major firms like Overstock, Dell, Expedia, and Time Inc. were established, allowing them to accept Bitcoin payments. Furthermore, Coinbase integrated Bitcoin payment processing capabilities with traditional payment companies like Stripe, Braintree, and PayPal.

Coinbase’s momentum continued in 2015 as the company launched Coinbase Exchange, a U.S.-based bitcoin exchange for professional traders. While product expansions included adding support for Ether, Ethereum, Litecoin, and ERC-20 tokens. It also launched Coinbase Ventures to invest in blockchain- and cryptocurrency-related companies, along with Coinbase Prime for institutional customers.

In 2019, amid growing concerns about network security and regulatory compliance, Coinbase acquired blockchain intelligence platform Neutrino. It also acquired the digital asset trading firm Tagomi. While in 2021 the company went public on the Nasdaq.

More recently, Coinbase’s expansion into India faced obstacles due to regulatory issues and it also announced layoffs amid a downturn in the cryptocurrency market. However, it has continued to form significant partnerships, including one with BlackRock, as it maintains its ability to evolve in a dynamic market.

Leadership

Brian Armstrong continues to serve as Coinbase’s chief executive officer. He has established the company as a leading cryptocurrency exchange and an integral part of the global cryptoeconomy. Under his leadership, Coinbase was one of the first to provide a user-friendly platform for buying, selling, and storing cryptocurrencies, making them accessible to a broader audience. His vision for Coinbase took it beyond just an exchange, diversifying its services toward professional traders and institutional clients. His focus on compliance and security also helped the company gain trust in a market known for its volatility and regulatory challenges.

Prior to Coinbase, he worked as a developer for Deloitte and later joined Airbnb as a software engineer. His experience at Airbnb, which involved dealing with payment systems in over 190 countries, was instrumental in shaping his influence on decentralized digital currencies. He was the founder and CEO of both Universitytutor.com, an online tutoring directory, and ResearchHub Technologies Inc., a scientific research development platform. Armstrong has been a vocal advocate for cryptocurrency and blockchain technology, emphasizing their potential to increase economic freedom and efficiency in global financial systems.

Customer

Coinbase has been instrumental in making cryptocurrency accessible and secure for a broad spectrum of users, ranging from individual retail investors to large institutional clients. Through its diverse and comprehensive tools and services, the company has established itself as a fundamental infrastructure component in the rapidly evolving world of digital finance and web3 technologies.

The Coinbase app is a comprehensive platform that enables users to discover, trade, and manage their crypto assets. Designed with both novice and experienced traders in mind, it offers various trading experiences, including a simple interface for general consumers and a sophisticated setup for experienced traders. In addition to the app, Coinbase provides a self-custody wallet option, the Coinbase Wallet, giving users full control over their digital assets and the ability to interact with decentralized applications. Aside from trading, Coinbase allows customers to earn yield on their crypto assets through various methods, including staking rewards and DeFi yield. They also offer an array of proprietary products within the app, such as peer-to-peer payments, direct deposit, and a Coinbase-branded debit card.

Many of these offerings have been tailored to institutional clients through Coinbase Prime. This platform is a complete solution for trading, storage, and asset management, catering to diverse institutional entities such as asset managers, hedge funds, and corporate clients. It provides integrated trading and financing solutions, enhancing capital efficiency across markets through a single platform.

Coinbase’s suite is rounded out by its merchant and developer solutions. Coinbase Commerce is a tool designed for merchants to facilitate cryptocurrency payments, thereby integrating digital finance into mainstream business operations. While Coinbase Cloud and Coinbase Pay enable companies to build crypto products efficiently and integrate crypto transactions into their businesses using trading APIs and data access.

Coinbase also generates income from the stablecoin known as USD Coin via transaction fees, interest earnings, rewards programs, and the facilitation of decentralized finance (DeFi) applications.

Thematic

Coinbase has solidified its presence in the digital asset market by making cryptocurrency accessible and safe for all users. The company has developed a comprehensive growth strategy that revolves around promoting cryptocurrency as an investment, and as a foundation for a new financial system, and also using crypto assets as a platform for applications, focusing particularly on the growth of Web3 and decentralized, blockchain-based internet applications.

New cryptocurrencies are continuously brought to the platform, providing its users with a wide array of investment options. New coins currently anticipated to launch include Bitcoin Minetrix, a Bitcoin cloud mining portal; Wall Street Memes, a large community-backed crypto project; and Sponge V2, a new upgrade of the Sponge Token, among many more.

By embracing crypto-native protocols and launching Base, an Ethereum Layer 2 network, Coinbase has positioned itself at the forefront of the DeFi movement. This allows the company to tap into a growing market of developers and users who are building and using decentralized applications (dApps). As more dApps are developed and used on the Base network, Coinbase can attract a wider user base, leading to increased transaction volume and revenue.

The introduction of Coinbase’s On-Chain Payments Protocol simplifies and unifies on-chain payments. This also attracts more users and businesses to use Coinbase for their crypto transactions, as it makes the process more straightforward and efficient. Moreover, by providing a platform for users to discover the most popular web3 dApps, Coinbase has positioned itself as the go-to resource in the crypto space.

Regulatory changes have been a significant factor in the crypto industry and Coinbase has been proactively tackling these changes. The company has been seeking regulatory clarity in its international expansion plan, focusing on acquiring licenses in major financial jurisdictions that are enacting clear rules for the crypto industry. As a result, it is targeting to expand its presence in the E.U., U.K., and Australia, in addition to recent launches within Canada, Brazil, and Singapore.

Proposed spot Bitcoin ETFs could have a significant impact on Coinbase’s business. These ETFs could bring Bitcoin further into the mainstream, making it accessible to millions more investors, including those in broker-dealer, registered investment advisor, and tax-advantaged account structures. In the long run, spot Bitcoin ETFs could add billions of dollars to the total crypto market cap and encourage new investments in the asset class. Furthermore, the approval of these ETFs should also lay the groundwork for a more regulated environment, greater inclusion in financial markets, and a substantial increase in demand for bitcoin. It also has the potential to lead to new financial products like lending and derivatives.

Financials

Given the cyclical nature of the crypto market, Coinbase has seen significant fluctuations in its revenue over the past few years. Since its listing in 2019 total revenue skyrocketed from $482.9 million to $7.4 billion in 2021 as a result of the cryptocurrency boom during which the price of Bitcoin reached all-time highs. With the market cooling in 2022, revenue retreated to $3.2 billion as various currencies saw significant pullbacks.

Coinbase’s profitability has been equally volatile. The crypto market downturn exposed the company’s bloated cost structure, resulting in huge losses as revenue dropped sharply. However, the company has turned things around with significant expense reductions making it a far leaner organization as it seeks to build a sustainable business to drive long-term growth. In its latest quarter, net losses were cut down to just $2 million, while adjusted EBITDA was positive for the third consecutive quarter.

Interestingly, in 2023 the company’s revenue mix has also evolved significantly. For the last two quarters, trading did not account for the majority of the cash coming in, as subscriptions and services, which include custodial fees, interest income, and staking revenue accounted for more than half of total revenue.

Looking ahead, consensus estimates have Coinbase slightly tempering revenue by 10% year-over-year for FY23 to $2.87 billion. However, analysts also expect the company’s losses per share to improve by 83% from a loss of $7.83 in FY22 to just $1.32 in FY23.

Risks/Competition

The cryptoeconomy remains highly fragmented, intensely competitive, and subject to increasingly global regulatory scrutiny and oversight. Coinbase faces significant competition from a variety of companies around the world ranging from crypto native companies, including decentralized exchanges, to large traditional financial services incumbents and financial technology providers.

The competitive landscape varies significantly by geography. While the traditional financial services and financial technology companies are largely US and European-based and operate under the same evolving US regulatory landscape, other crypto-native companies that operate primarily in international markets are often subject to less regulatory oversight. As a result, their product offering is different, with the ability to offer a wider range of crypto assets and product experiences such as higher leverage financing products that appeal to sophisticated traders.

However, across Coinbase’s product portfolio, they differentiate themselves through a cohesive ecosystem of products and services that address the distinct needs of customers. Its full-stack technology platform is purpose-built for the cryptoeconomy, while significant investments in regulatory compliance and licensure, advanced cryptography, and security expertise provide a valuable emphasis on accessibility, trust, and ease of use. Additionally, the company’s ability to quickly and continuously innovate have further separated Coinbase from its competition.

Conclusion

Coinbase has been a pioneering force in the digital economy and is shaping the future of how people and businesses interact with digital finance. Despite facing challenges like market volatility and regulatory hurdles, it remains committed to expanding its product offerings and enhancing its technological infrastructure, reinforcing its role as a fundamental player in the cryptoeconomy.

Symbol Info

Weekly Chart

Fundamental Data