Coinbase
Global executives for months have said they are seeking to diversify so they can make money no matter what happens in crypto trading. But for now, the company is highly dependent on traders, and specifically trading in
Bitcoin,
crypto’s largest token.
That is one message from a report put out last week by crypto data provider Coin Metrics. Despite increasing the number of currency pairs tradable on the platform from a little more than 100 in 2021 to more than 600 now, Bitcoin and
Ether,
the second-largest token, have consistently amounted to about half of the activity.
“This shows that simply adding new assets isn’t a guaranteed way of generating trading fee revenue,” the Coin Metrics report said.
Coinbase (ticker: COIN) has also added nontrading revenue streams, such as a service that allows users to post their tokens in exchange for yield. It has made an increasingly amount of money from the reserves held to back its stablecoin, called USDC, as yields have risen.
Yet the company’s fate overall is still tightly bound to trading activity. “Coinbase’s stock price ($COIN) has tracked spot volume very closely,” the report said.
Coinbase didn’t respond to a request for comment. On earnings calls, executives have said that they are working to diversify the company’s revenue away from trading and that they see the firm as becoming a primary way through which people interact with all aspects of the crypto ecosystem, rather than just an exchange.
This year, Coinbase’s price has rocketed 101% to $70.96, though it is still far below its 2021 peak of more than $340. Bitcoin similarly has risen 60% to $26,500 but is nowhere near the $64,000 it traded at a couple of years ago.
At least for now, there are few signs that crypto trading activity is close to rebounding. Exchanges broadly are handling daily volume that is about half of where it was a year ago and less than a fifth of what they were during the 2021 boom.
Some crypto investors have looked to the potential launch of a spot Bitcoin exchange-traded fund as a catalyst. A court last month said the Securities and Exchange Commission erred when it denied crypto firm Grayscale Investments’ bid to convert the
Grayscale Bitcoin Trust
(GBTC) into an ETF, potentially paving the way for such ETFs to launch as soon as October.
But even that launch could be a double-edged sword for Coinbase. By giving investors an easier and potentially cheaper way to buy and own Bitcoin, such an ETF could bolster the token’s price even as it cannibalizes some of Coinbase’s user base. Meanwhile, the company separately faces its own lawsuit from the SEC alleging that it operates as an unregistered securities exchange, a charge the company denies and is fighting.
Company executives are optimistic that they will ultimately prevail in court and that crypto traders will come roaring back as they have in past cycles. The stakes are high for Coinbase investors.
Write to Joe Light at [email protected]
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