Stocks of Cryptocurrency Stocks Coinbase Global (COIN 17.02%) they are down more than 85% from their peak in late 2021 as the crypto market exploded. Trading is down, prices are down and there are concerns that margins will be under pressure all year.
As awful as today’s operating conditions are, Coinbase continues to build for the future. And if it can execute on plans to become more than just an exchange, this could be one of the biggest winners in the future of crypto and Web3.
Coinbase has made money by being a popular crypto exchange, especially in the US. But there are other exchanges with lower fees, and Coinbase will naturally have pricing pressure to lower transaction costs for all users. Combine that with an overall decline in transaction volume and you have a recipe for declining revenue and margins in 2022.
In the first quarter of 2022, retail trade volume fell from $177 billion to $74 billion sequentially. The vast majority of revenues are generated by retailers, so this is the biggest reason for the decline in revenues and earnings.
There is no simple solution to the exchange problem. Margins will continue to shrink, and retailers may not be back anytime soon. So Coinbase has to look elsewhere for revenue.
Business is where the money is
Coinbase may be known as a popular exchange for traders, but the future of its business could be business services. Subscription and services revenue jumped 169% in the first quarter of 2022 compared to a year earlier, while transaction revenue fell 34%.
There are numerous options such as investment services, which take a 25% commission to help users invest in cryptocurrencies. Custodial fees were also $31.7 million, and I think that amount could rise as the company offers security products to customers. Coinbase is looking to combine its app and wallet into an easier-to-use platform, which could make user onboarding easier.
Cloud services could be a big part of the company’s future, and developers want to build faster in Web3. There is no point in building wallet integrations, trading tools or trading capabilities when they are available through the Coinbase Cloud. This could be a cloud giant for Web3 companies.
For example, Coinbase is one of the providers of Shopify’s crypto payment platform, and the same tools are available to everyone. If you think commerce will be disrupted by “crypto rails” — or that cryptocurrency is the way funds move from buyer to merchant — instead of credit or debit cards, Coinbase could be a big player.
Crypto and NFTs will one day be invisible
If I have to summarize the long-term case for Coinbase, it’s that no company can make cryptocurrencies and NFTs invisible better than Coinbase. As someone told me at the world’s largest non-fungible token conference NFT.NYC, “this shouldn’t be an event for most people.”
What does that mean? This means that users should not have to worry about remembering security phrases that could compromise their accounts or wallet integrations or sign malicious transactions in Web3. You should feel comfortable using Web3 tools, and the technical details should fade into the background.
I think that’s what we’re seeing with Coinbase integrating more of their apps and wallet products together, introducing an NFT market, and making “Pay with Coinbase” available to merchants. When concert tickets are moved to the blockchain, it will be nothing because the tickets will simply go to your Coinbase app. Or when a coffee shop sends you an NFT for loyalty, it can sit in the background of your Coinbase app, invisible to you because it lives on the blockchain, but it can be hidden from view.
Focus on the next billion users
Coinbase is building the tools to engage the next billion people in crypto, NFTs and the Web3 beyond. That’s what the company is doing in this bear market, and if it succeeds, the company could emerge from this stronger than ever.
Travis Hoium holds positions in Coinbase Global, Inc. and Shopify. The Motley Fool has positions and recommends Coinbase Global, Inc. and Shopify. The Motley Fool recommends the following options: long $1,140 January 2023 calls on Shopify and short $1,160 January 2023 calls on Shopify. The Motley Fool has a disclosure policy.