Cryptocurrency markets have experienced significant volatility in recent years, with investor sentiment swinging between exuberance and caution. As prices retreated from their 2021 highs, so too did the stock price of Coinbase — one of the industry’s most prominent players. Despite strong fourth-quarter results for fiscal year 2021 (FY21Q4), forward guidance for FY2022 painted a more conservative outlook, fueling speculation that the crypto winter may be upon us.
However, as a leading cryptocurrency exchange with a growing user base and diversified revenue streams, Coinbase remains strategically positioned for long-term growth. With its Price-to-Sales Ratio (PSR) near historical lows, now could be an opportune time to evaluate its potential. We believe the market has already priced in much of the anticipated downturn, making Coinbase an attractive candidate for strategic investment.
Understanding Coinbase’s Financial Performance
Coinbase’s financial trajectory closely mirrors the broader cryptocurrency market. In fiscal year 2021 (FY2021), the company reported a staggering $7.355 billion in revenue — a 514% increase from FY2020’s $1.1 billion. This surge was primarily driven by rising digital asset prices and increased trading activity.
The breakdown of FY2021 revenue reveals:
- Transaction revenue: $6.837 billion (93% of total)
- Subscription and other services: $518 million (7%)
Notably, subscription revenue grew at an even faster pace — up 1,050% year-over-year — signaling early success in diversifying beyond transaction fees.
For FY2022, projected total revenue is estimated at $7.236 billion, reflecting a slight 7.7% decline. Earnings per share (EPS) are expected to dip into negative territory at -$1.15 due to increased investments in talent, infrastructure, and product expansion.
Despite this short-term headwind, Coinbase’s stock has already corrected significantly since its April 2021 IPO, trading between $150 and $200 — down over 40% from peak levels. Its current PSR sits near historical lows, suggesting that pessimistic expectations are largely reflected in the share price.
We maintain a positive long-term outlook and recommend a “buy on weakness” strategy, with a target price of $240.
Coinbase: A Pioneer in Publicly Listed Crypto Exchanges
Coinbase (NASDAQ: COIN), founded in 2012 and publicly listed in April 2021, stands as the largest cryptocurrency exchange in the United States. It offers trading access to approximately 50 digital assets, including major cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Avalanche (AVAX), Solana (SOL), and its own stablecoin, USD Coin (USDC).
In FY2021 alone, Coinbase facilitated around $162 billion in trading volume, supported by 11.4 million monthly transacting users (MTUs). As a centralized exchange (CEX), Coinbase acts as an intermediary between buyers and sellers, earning revenue through trading fees and spreads.
This model contrasts with decentralized exchanges (DEXs), which enable peer-to-peer transactions without intermediaries. While DEXs appeal to privacy-focused users, they typically do not support direct fiat-to-crypto trading — a key advantage that keeps Coinbase competitive.
Although Coinbase charges higher fees compared to some rivals, its intuitive interface, robust security protocols, and regulatory compliance help maintain strong user retention. For many retail investors, especially those new to crypto, Coinbase remains the go-to platform for seamless onboarding.
Revenue Model: Retail Users Drive the Majority of Income
Over 90% of Coinbase’s revenue comes from trading activities, with retail investors accounting for approximately 95% of that segment. Institutional clients contribute only about 5%, though this portion is expected to grow as more traditional financial institutions adopt digital assets.
Key Services Offered by Coinbase
For Retail Investors
- Coinbase: A beginner-friendly brokerage platform where users can buy, sell, and store crypto. Assets are held in custodial wallets managed by Coinbase.
- Coinbase Pro: A professional-grade exchange offering advanced order types and lower fees, ideal for experienced traders.
- Coinbase Wallet: A self-custody wallet allowing users full control over their private keys — independent of the main Coinbase app.
For Institutional Clients
- Coinbase Prime: An integrated suite offering trading, custody, and reporting tools tailored for institutions.
- Coinbase Custody: Secure storage solutions for large-scale investors such as hedge funds and endowments.
The distinction between custodial and self-custody models is critical. In custodial setups (like standard Coinbase accounts), the platform holds users’ private keys. In contrast, self-custody wallets (such as Coinbase Wallet) give users full ownership — aligning with the decentralized ethos of blockchain technology.
How Transaction Fees Work on Coinbase
Coinbase generates income through two primary mechanisms during trades:
- Spread: The difference between the market price and the price at which a user buys or sells. Typically around 0.5% of the transaction value, though it may vary based on asset liquidity.
- Transaction Fee: Charged when converting between fiat currency (e.g., USD) and cryptocurrency. Fees depend on payment method, location, and transaction size — calculated as the higher of a fixed fee or a percentage rate.
Notably:
- Conversions between cryptocurrencies (e.g., BTC to ETH) incur no additional transaction fees.
Fiat transactions use a tiered pricing model:
- Up to $10: $0.99 flat fee
- $10–$25: $1.49
- $25–$50: $1.99
- Above $50: Percentage-based fee applies
This structure ensures predictability for small transactions while scaling efficiently for larger ones.
Frequently Asked Questions (FAQ)
Q: Is Coinbase safe for beginners?
A: Yes. Coinbase is known for its user-friendly design and strong security measures, including two-factor authentication and offline asset storage. It's one of the most trusted entry points into cryptocurrency investing.
Q: Why is Coinbase’s stock price so volatile?
A: Because its revenue is heavily tied to trading volume — which correlates strongly with crypto market cycles — Coinbase’s stock tends to move in tandem with Bitcoin and Ethereum prices.
Q: Can I earn passive income on Coinbase?
A: Yes. Through staking programs and interest-bearing accounts (where available), users can earn yields on certain cryptocurrencies like ETH, USDC, and others.
Q: Does Coinbase operate globally?
A: While headquartered in the U.S., Coinbase serves customers in over 100 countries — though availability varies due to local regulations.
Q: What threatens Coinbase’s future growth?
A: Regulatory uncertainty, competition from lower-cost exchanges, and prolonged bear markets could all impact profitability. However, ongoing product innovation and institutional adoption may offset these risks.
Q: How does Coinbase compare to decentralized exchanges?
A: Unlike DEXs, Coinbase supports direct fiat deposits and withdrawals, offers customer support, and complies with KYC/AML rules — making it more accessible but less aligned with full decentralization principles.
Final Thoughts: A Strategic Play Amid Market Uncertainty
While macroeconomic pressures and crypto market corrections pose challenges, Coinbase continues to strengthen its ecosystem beyond simple trading. Its expanding suite of services — from staking to institutional custody — reflects a deliberate shift toward sustainable revenue diversification.
With PSR near historic lows and a solid foundation of over 11 million active users, the current valuation appears to reflect worst-case scenarios. For forward-looking investors, this presents a compelling opportunity to position ahead of the next market cycle.
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