Can You Buy Coinbase as a Play on Circle’s Surge?

The explosive 7x rally in Circle following its IPO has left many investors scrambling for alternatives—especially those who missed the initial surge. Among the most popular suggestions: going long on Coinbase. After all, Coinbase co-created USDC, the dollar-backed stablecoin at the heart of Circle’s success, and benefits directly from its growth. It seems logical—on the surface—that optimism around Circle and USDC could lift Coinbase’s stock.

But is that really the case?

Recent analysis from institutional research platform Artemis, led by analyst Kevin Li, warns against this line of thinking. While Coinbase and Circle are intertwined, Coinbase is not a pure proxy for Circle or USDC. In fact, USDC-related revenue makes up only a small fraction of Coinbase’s total income. Meanwhile, every major business line at Coinbase—its exchange, derivatives, Base L2, and even USDC—is facing intensifying competition and structural headwinds.

Let’s break down why betting on Coinbase as a substitute for Circle may not be as straightforward as it seems.

🔍 Understanding Coinbase’s Ecosystem Strategy

Coinbase began as a simple gateway for retail users to buy Bitcoin. Its user-friendly interface, combined with aggressive compliance efforts, allowed it to become the go-to regulated exchange in the U.S.—a trusted name in a space often plagued by fraud and uncertainty.

From that foundation, Coinbase expanded aggressively. It launched Coinbase One, a subscription service; added staking and yield products; co-developed USDC with Circle; and most recently, introduced Base, its Ethereum Layer 2 blockchain. Today, Coinbase operates a vertically integrated crypto ecosystem: exchange, stablecoin, blockchain, and developer tools.

👉 Discover how integrated crypto platforms are reshaping digital finance

This evolution reflects a clear business model:

Revenue = Number of Users × ARPU (Average Revenue Per User)

The strategy? Grow the user base through trust and compliance, then increase ARPU by layering on new monetizable services—like yield, staking, derivatives, and on-chain activity via Base.

And it’s working: while transaction fees once made up over 90% of revenue, they now account for only about 55%, with newer streams filling the gap.

❌ Why Coinbase Isn’t a Circle Proxy

Despite the shared history with USDC, Coinbase does not capture most of the upside from Circle’s success.

Here’s the reality:

• USDC revenue sharing: Coinbase earns ~60% of USDC’s net interest income from reserve assets (mainly U.S. Treasuries).
• But it passes ~43% back to users as yield rewards.
• Result: Coinbase keeps only about 34% of USDC’s total economic value—and that translates to roughly 15–20% of its total revenue.

So while Circle’s IPO highlights the massive potential of stablecoins, Coinbase is only a partial beneficiary.

And let’s not forget: Tether (USDT) still dominates with ~75% of dollar-pegged stablecoin volume. USDC’s regulatory edge—once seen as a key differentiator—has weakened, especially as Tether strengthens its own compliance posture through partnerships with firms like Cantor Fitzgerald.

👉 Explore how stablecoin dynamics are shifting in 2025

Bottom line: If you’re bullish on Circle or the future of USDC, investing directly in Circle offers far more exposure than buying Coinbase stock.

⚠️ Structural Pressures Across Coinbase’s Core Businesses

1. Exchange Business: Eroding Moats

Coinbase’s exchange was once dominant—controlling over 58% of U.S. spot trading volume. Today? That share has dropped to around 38%, under pressure from three major forces:

• Bitcoin and Ethereum ETFs: Institutional capital now flows directly into regulated ETFs (like BlackRock’s IBIT), bypassing exchanges entirely. These ETFs have attracted over $100B in assets in just one year.
• Rise of DEXs: Platforms like Uniswap and Raydium offer instant access to thousands of tokens—including meme coins—that Coinbase avoids due to compliance concerns.
• Traditional finance entrants: Robinhood now captures 76% of Coinbase’s retail volume, thanks to low fees and seamless integration.

To stay competitive, Coinbase slashed its trading fees from 2.5% to 1.4%—a move that protects volume but crushes margins.

“When compliance is no longer a barrier, competition shifts to speed, cost, and access to new assets.”
— Kevin Li, Artemis

And Coinbase is losing ground in both speed and access—especially in the red-hot Solana meme coin ecosystem.

2. Derivatives: Strong Volume, Weak Monetization

Coinbase launched derivatives in 2024, and trading volume quickly soared past $300B per month. But high volume doesn’t equal high profit.

Why?

• Aggressive liquidity incentives and rebates eat into revenue.
• Growing competition from ETF-linked options, which offer regulated exposure to BTC and ETH without needing a crypto-native exchange.

While derivatives could become a key revenue pillar, especially with U.S. rollout in 2025, they’re not yet driving meaningful profitability or user growth.

3. Base: High Growth, But Fragmentation Challenges

Base, Coinbase’s Ethereum L2, has seen explosive growth:

• Highest transaction volume among Ethereum L2s.
• Powers popular apps like FriendTech and Farcaster.
• Generates ~$1M in gross weekly profit (90% margin) via sequencer fees.

Yet despite strong metrics, Base still lags behind unified chains like Solana, which has:

• 3x more daily active users
• 7x more daily transactions

Why? Because modular L2s like Base suffer from fragmentation: bridging assets is slow and expensive, liquidity is split, and cross-chain interoperability remains clunky—even with tools like AggLayer.

While Base benefits from Coinbase’s brand and distribution, it hasn’t yet achieved breakout adoption beyond early crypto natives.

💰 Valuation: Is Coinbase Undervalued?

Using a sum-of-the-parts model, we can estimate Coinbase’s intrinsic value:

On paper, this suggests Coinbase may be undervalued. But markets aren’t blind to risk.

The discount likely reflects:

• Shrinking exchange margins
• Intense competition across all verticals
• Regulatory normalization reducing barriers to entry
• Uncertain long-term profitability of new ventures

In other words: the market is pricing in real structural risks—not just short-term volatility.

📚 Frequently Asked Questions (FAQ)

Q1: Is Coinbase a good investment if I’m bullish on USDC?

Not necessarily. While Coinbase benefits from USDC growth, it only retains about 34% of the economic value generated by USDC reserves—and that stream makes up less than 20% of total revenue. For direct exposure to USDC’s success, Circle is a better fit.

Q2: How much does USDC contribute to Coinbase’s revenue?

USDC-related income accounts for approximately $1 billion annually**, or **15–20% of total revenue**. After sharing yield with users, net income is closer to **$684 million per year (~$171M per quarter).

Q3: Why is Coinbase losing market share?

Three main reasons:
1) ETFs allow institutional investors to bypass exchanges
2) DEXs offer faster access to new and meme coins
3) Traditional platforms like Robinhood offer lower fees and broader reach

Q4: Can Base become a major profit center?

It has potential. Base is highly profitable (~90% margin) and growing fast. But it faces stiff competition from high-performance chains like Solana and struggles with fragmentation inherent in modular L2 designs.

Q5: Are Coinbase’s derivatives profitable?

Not yet. While monthly volumes exceed $300B, most revenue is offset by liquidity incentives and rebates. Long-term profitability depends on reducing reliance on subsidies and differentiating from ETF-based alternatives.

Q6: Should I buy Coinbase stock now?

It depends on your risk tolerance. The valuation appears attractive on paper, but every business segment faces increasing competition. If you believe in Coinbase’s ability to innovate and monetize its ecosystem beyond trading, it may be worth considering—but not as a simple play on Circle or USDC.

✅ Final Takeaway: A Diversified Giant Facing Full-Spectrum Competition

Coinbase is no longer just an exchange—it’s building a full-stack crypto ecosystem. But diversification brings complexity.

Every leg of its business—spot trading, derivatives, Base, and even USDC—is under pressure:

• ETFs are disintermediating exchanges
• DEXs are capturing speculative volume
• Traditional platforms are eroding retail dominance
• Regulatory clarity is lowering barriers to entry

While the sum-of-the-parts valuation suggests upside potential, the market’s cautious stance reflects legitimate concerns about shrinking moats and margin compression.

👉 See how leading platforms are adapting to the new crypto landscape

Bottom line: Don’t buy Coinbase because Circle went parabolic. Buy it only if you believe in its long-term vision—and are prepared for the fight ahead.