Generally, Coinbase and other crypto currencies exchanges perform well whencryptos are in a bull market. In 2023 Bitcoin alone contributed one thirdof Coinbase’s trading volume and transaction revenue. Given Bitcoin’smarket cap of $1.2 trillion is half of the total cryptocurrency market cap,its performance can heavily influence the rest of the digital tokens andrelated stocks.
Bitcoin enjoyed a stellar run last year and Coinbase has been a keybeneficiary. Crypto currency prices surged in anticipation and after thelaunch of the spot Bitcoin exchange traded funds (ETFs) in mid-January.That triggered a renewed interest in digital currencies pushing Bitcoinprice to a new all-time high in mid-March.
Bitcoin has rallied strongly since November 2022 advancing more than 370%from its low of $15,500 to its fresh record high of $73,666. SimultaneouslyCoinbase has bottomed at $31.55 in January 2023 and has surged to $283.48 inMarch – gaining more than 780%.
After reaching a high of $283.48 in March the share price of Coinbasedeclined 27%, in tandem with the crypto complex. Bitcoin retreated 18%during the same period, while Ethereum was down 30%. The movements in cryptoprices not only affect Coinbase share price but also its trading volumes. Ina crypto bull market Coinbase trading volumes spike, while in a crypto bearmarket volumes subside.
Source: TradingView
The impact of halving on bitcoin price
The euphoria around the Bitcoin halving has started to fade and its pricehas been trading sideways between $60,000 and $73,000 over the past month.While past halving cycles have triggered a massive bull run for Bitcoin,caution is required at present as the macro-economic environmentcharacterised by high inflation and high interest rates, is different fromprior halving events.
There is clear division among investors about the impact of the halving onBitcoin’s price. One camp expects Bitcoin prices to surge significantlyhigher due to the supply shock, while the other is of the view that thehalving is already priced in.
Now that the Bitcoin halving seen as one of its latest major price driversis over, the outlook for cryptos would turn again to the macro-economicfactors such as interest rates, inflation, the direction of the stockmarkets and geo-political tensions. Over the long-term, we expect Bitcoin’sbull run to resume and we see higher price levels on the cards.
Coinbase is a custodian for most of the spot Bitcoin ETFs
Coinbase is the custodian for eight of the eleven new Bitcoin ETFs, whichis highly beneficial for the company’s business as demand for Bitcoin ETFshas been huge. The company charges a fee for assets under custody, whichare a few basis-points on the assets under custody.
Cryptocurrency custodians have a similar role to banks in traditionalfinance – to settle trades, manage regulatory reporting, keep, and manageclients’ assets. However, for crypto markets the process is more complex asit is more specific to digital assets. Also, the technology, security andstorage requirements are different.
Prior to the launch of Bitcoin ETFs Coinbase revenue from custody fees forQ4’23 was at $19.7 million. This figure is likely to be substantiallyhigher in Q1’24 as spot Bitcoin ETFs assets under management have beensurging since their launch.
Investor’s focus turns to the earnings report on the 2 ndof May
Apart from crypto prices, the next driver for Coinbase share price would bethe company’s earnings which have been exceeding estimates in the last fourquarters. The results will provide information about the company’stransaction revenue, the growth of the custodian business, given Coinbaseis the biggest holder of Bitcoin ETFs.
Although the latest drivers of bitcoin have not transpired into Coinbaseearnings results yet, the company has been gradually improving itsfinancials. In Q4’23 Coinbase turned into profitability for the first timesince Q4’22 – where from a loss of $557 the company turned into profits ofover $273 million.
In its Q4’23 results Coinbase declared diluted earnings per share of $1.04.Total revenue has risen to $953.8 million marking the company’s secondconsecutive increase after six quarters of declines. Consumer transactionrevenue surged almost 60% annually to $492.5 million.
Consensus estimates point to a strong Q1’24 with revenue above $1.3 billionand earnings per share of $1.05. According to the company, transactionrevenue is rising, and it predicts subscription and services revenue willbe in the range between $410 million and $480 million vs. $361.7 millionthe same quarter the prior year.
Coinbase outlook
While some see the Bitcoin ETFs pulling business from Coinbase over thelonger-term, the company’s CEO Brian Armstrong is a lot more optimisticabout the impact of Bitcoin ETFs on the company and crypto markets ingeneral, pointing to observed increased engagement and both retail andinstitutional inflows.
Coinbase is benefiting from the crypto adoption and booming activity afterthe spot Bitcoin ETFs launch. The significant volume growth in the quartercould fuel a strong Q1’24 results, beating Wall Street expectations. Whilesome short-term volatility could be seen, the long-term outlook remainsbright as the company would benefit from the blockchain technology adoption.However, if crypto prices stagnate in the near-term the growth couldcontinue at a slower pace.
Of course, the most powerful factor that could influence Coinbase shareprice in the very short-term is how the actual results would compare toconsensus estimates. The immediate performance of the stock followingCoinbase earnings report would be influenced by whether Q1’24 results meetor miss expectations and the company’s management discussion of businessconditions on the earnings call and its forward guidance. Overall, Coinbaseappears to be well positioned to beat its Q1’24 earnings estimates.
Conclusion
The crypto space has a huge potential as the approval of the eleven BitcoinETFs marks a significant milestone in integrating cryptocurrencies intomainstream finance and is likely to offer consistent support to the sectorin the long run.
Professional traders looking for magnified exposure to Coinbase mayconsiderLeverage Shares +3x Long CoinbaseorLeverage Shares -3x Short CoinbaseETPs.
Footnotes:
- Coinbase / Investor Relations