Markets
Coinbase trading revenue under pressure as crypto matures
(Bloomberg) — It’s been a pivotal year for digital assets, but their move into the mainstream is making price swings less wild, diminishing a key appeal for many investors and poised to upend the growth of the largest source of revenue for exchanges such as Coinbase. Global Inc.
Most read on Bloomberg
Despite better-than-expected first-quarter revenue and profit, trading volume at the largest U.S. cryptocurrency exchange rose to $56 billion, down from a peak of $177 billion in the fourth quarter of 2021 , at the height of the crypto’s previous bull run. Trading volume for Bitcoin – which fuels Coinbase’s trading fee revenue – has remained subdued since the world’s largest cryptocurrency hit all-time highs in March following the introduction of spot exchange-traded funds Bitcoin.
“Volatility looks much more mature in this cycle than it did in 2021,” Coinbase CFO Alesia Haas said at JPMorgan’s annual global technology, media and communications conference this week. last. “Bitcoin volatility, Ethereum volatility is starting to come, what I call, onto the grid.”
The average volatility of digital assets fell to 57% this year, compared to around 79% in 2021, according to researcher CCData. Higher volatility tends to attract more speculative traders.
During the May investor conference, Coinbase executives mentioned words like “maturity” and “maturation” seven times, especially when talking about the crypto market.
What’s driving all the talk about the market maturing is the fact that, for Coinbase as well as other exchanges, trading fee revenue this year is unlikely to match 2021’s uptrend.
Other exchanges are also forecasting lower volatility this year, in part due to the creation of the Bitcoin spot ETF, leading to more orderly inflows and less chaos. Additionally, the prices of tokens – including Bitcoin – are already high, meaning they simply won’t be able to rise that quickly.
“The market is more mature today and is less likely to experience wild swings,” said Bobby Zagotta, CEO of Bitstamp USA. “It will still be volatile, and there will still be upward momentum on Bitcoin and crypto prices, but I don’t think it will be as explosive as previous cycles.”
Thomas Perfumo, head of strategy at Kraken, echoed this sentiment. “I don’t think we’re going to have a lot of repeats of what we’ve seen in previous markets in terms of the scale of growth,” he said in an interview. .
The story continues
The future of Coinbase is far from bleak, however. Net profit, for example, is expected to increase 20-fold this year compared to 2023, according to data compiled by Bloomberg. But its absolute revenue and net profit are still expected to be lower than the 2021 peak.
The company’s outlook will depend on how long the current bull market continues. If this extends to 2025, Needham & Co. analyst John Todaro expects Coinbase to generate more revenue. Coinbase’s ability to maintain its spot market share will also be key as its share fell to 4.18% in May from 6.5% at the start of 2023, according to CCData.
Nonetheless, Coinbase is now much more diversified and less reliant on trading fees than it was in 2021. The company already made about a third of its first-quarter sales from other sources, such as share income on the USDC stablecoin. It also records revenue from its Base blockchain, which debuted last year. That could represent “a $300 million annual revenue opportunity,” Todaro said.
And Coinbase is already the custodian for most spot Bitcoin ETFs in the United States. It is also listed as a custodian of five spot Ether ETFs that are close to being authorized by US regulators. Ether ETFs are not generally expected to be a significant income generator in the near term. But Oppenheimer & Co. analyst Owen Lau expects them to increase Coinbase’s stature in the industry.
Some, like Lau, even argue that lower volatility makes Coinbase shares more attractive. The stock is up about 40% so far this year, although it is more than 30% below an all-time high reached in late 2021.
The maturity of the market will benefit Coinbase in the long run, “because Coinbase is diversifying beyond just trading,” Lau said. “Coinbase revenue could become even more predictable. This means they could get a higher revenue multiple.
Most read from Bloomberg Businessweek
©2024 Bloomberg LP