Stablecoins, Unstable Crypto Market Propel Coinbase Profits

Renewed investor enthusiasm for crypto has been good news for U.S. cryptocurrency exchange Coinbase.

And while 2023 wasn’t the greatest year for crypto, it was no 2022, and Coinbase’s latest quarterly results, announced Thursday (Feb. 15), highlight that the famously volatile digital asset sector could, once again, be on the upswing.

The company’s fourth-quarter revenue beat analysts’ $826 million estimate by more than $100 million, landing at $953 million — up 41% quarter-over-quarter — underscoring the downstream benefit to the exchange of soaring crypto prices.

Bitcoin on Monday (Feb. 12), for example, reached $50,000 for the first time in 26 months.

“In 2023, we saw our operational rigor pay off. We achieved our financial goal [to generate positive Adjusted EBITDA in all market conditions], launched new innovative products, strengthened our competitive position, and doubled down on our efforts to create momentum for a workable regulatory framework for crypto in the US,” wrote Coinbase CEO Brian Armstrong in his shareholder letter.

“In 2024 Coinbase will focus on three main priorities. First, driving revenue through improving our core trading and USDC. Second, driving utility in crypto with experiments in payments using USDC and Base. Lastly, we will continue to drive regulatory clarity for the industry,” Armstrong added.

Company executives repeatedly emphasized to investors on the call that the U.S. Security and Exchange Commission’s (SEC) recent spot bitcoin ETF approval was a watershed moment for the expansion of the cryptoeconomy, resulting in both consumer and institutional inflows to the sector.

Coinbase plays a key role as custodian for eight of the 11 bitcoin ETFs.

Per its results, the company shed over 1,000 employees over the past year.

Read more: Coinbase and SEC Prepare for Courtroom Crypto Showdown

Riding the Crypto Market Wave

Coinbase’s 2023 fiscal year numbers compared to its fourth quarter financial results emphasized the difference a year can make in the crypto landscape.

The company’s 2023 transaction revenue was $1.5 billion, down 36% year over year, and total trading volume was $468 billion, down 44% YoY.

Consumer trading volume for the full year 2023 was $75 billion, down 55% YoY, and institutional trading volume was $393 billion, down 41% YoY.

The primary driver of these declines was “multi-year lows in crypto asset volatility,” executives told investors.

But the exchange’s Q4 numbers told a more positive story about the crypto ecosystem.

Coinbase’s Q4 consumer transaction revenue was $493 million, up 79% quarter over quarter, and the exchange’s Q4 consumer trading volume was $29 billion, up 164% from the previous, significantly better than the U.S. spot market, which grew 90% over the same period, executives noted.

“Most customers on our platform own multiple crypto assets, not just bitcoin,” Coinbase CFO Alesia Haas told investors.

The exchange’s Q4 institutional transaction revenue was $37 million, up 161% quarter over quarter. Institutional trading volume increased 92% from the previous quarter, which was in line with the U.S. spot market company materials noted.

Notably, as of Q4, 33% of the 100 largest hedge funds in the world by reported assets under management had chosen to onboard with Coinbase, the company reported.

Read more: ‘Cryptofinance’ Might Be Replacing ‘Cryptocurrency,’ but Bitcoin Is Still Unreliable

Coinbase’s stablecoin revenue jumped around 18% to $171.6 million, the exchange reported during its fourth quarter 2023 earnings call. The company also noted ongoing benefits from its partnership with Circle, the issuer of the stablecoin USD Coin (USDC), in part due to the fact that Coinbase earns interest on USDC’s reserves.

“Payments is one of the areas we are exploring in 2024,” Armstrong told investors. “The more you reduce friction, the more use cases you’ll start to see. Payments is a huge industry, particularly in local markets with high inflation where there is strong demand for the dollar … USD Coin gives them a trusted option. Once people have those dollars, they’re going to want to use those dollars.”

The company reported that its current product strategy was mapped against three pillars of crypto adoption.

The first pillar views crypto as an asset class, which centers around the core trading and store of value use case. The second pillar sees crypto as an update to the financial system, which centers around stablecoins, staking services and more. And the third pillar sees crypto as an app platform, which centers around a wide variety of applications, from decentralized services to cloud services and commerce.

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