According to Coinbase’s first-quarter earnings report, which was published on May 2, the company has been doing well as a result of the growing Bitcoin and Ethereum markets in recent months.The data, however, suggests that the Base platform has much more promise, which might make Coinbase the NVIDIA of decentralized finance (DeFi).Base, an inexpensive, safe Ethereum layer-2 solution, was introduced in August 2023 with the goal of growing Coinbase’s user base on-chain to expedite transactions.The goal of Coinbase’s aim is to decentralize Base and establish an open, worldwide cryptocurrency ecosystem by utilizing the public, secure Ethereum mainnet.
According to Coinbase’s Q1 report, volume on Base has surged past its competitors, particularly after the rollout of Ethereum’s Dencun upgrade. DeFi crypto exchanges on Base saw daily trading volume surpass $1 billion per day, narrowing the gap between Coinbase’s main centralized exchange trading volumes, where almost 250 cryptocurrencies are traded.
Activity on Base was considerably increased with the Dencun renovation.Base quickly outpaced competitors like Optimism and Arbitrum in terms of daily transaction volume and income.The update increased user engagement and transaction volume while lowering costs for layer-2 scaling chains like Base.
Since the upgrade, Base has consistently processed more than 3 million transactions daily, substantially lifting its fee revenue. If this pace is sustained, Base could become a big growth driver for Coinbase. Since the Dencun upgrade, the fees that Base has earned have surpassed the other major Ethereum scaling networks.
With about 250 DeFi protocols already in use on the network, Base’s support for these protocols is responsible for the income rise.Base’s remarkable surge in market share in such a short amount of time highlights its potential and supports the idea that Coinbase has the ability to emerge as the long-term industry leader, similar to NVIDIA for DeFi.
Since the halving of Bitcoin, one of its primary price drivers, has concluded, macroeconomic variables like interest rates, inflation, stock market direction, and geopolitical tensions may once again play a role in the prognosis for cryptocurrencies. A risk-off sentiment in the markets and pressure on riskier assets to decline could be caused by the Federal Reserve’s “higher for longer” policy.For the second quarter of 2024, Coinbase gave solid projections, but it also issued a warning that the outcome will rely on cryptocurrency prices.Trading volumes have been falling since Bitcoin peaked in mid-March, and if cryptocurrency values keep falling, the second quarter is probably going to be worse than the first.
Over the long-term, Bitcoin’s bull run is likely to resume. Higher price levels are in the cards. But in the short-term, further weakness is likely to unfold.
Coinbase’s transaction income makes up about half of its total revenue. The remaining 50% is generated by non-transactional revenue, which includes interest income, custodial fees, blockchain rewards, stablecoin revenue, and subscriptions and services. The revenue from non-transactions has increased significantly over the last two years and has the potential to compensate for changes in transaction revenue, which is closely linked to the price of cryptocurrencies.Eight of the eleven new Bitcoin ETFs that were introduced on January 10 are held by Coinbase.In the first quarter of 2024, the assets under management of these ETFs approached $60 billion.For assets in custody, Coinbase levies a fee that is calculated as a few basis points.
Coinbase custodian fees will climb in tandem with the amount of assets managed in these ETFs.The revenue from Coinbase custodian fees in Q4 of 23 was $19.7 million.Custodial fee revenue for Coinbase increased by 90% to $32.3 million following the introduction of the Bitcoin ETFs in mid-January.In traditional finance, cryptocurrency custodians have a similar role to banks in that they handle regulatory reporting, settle trades, and maintain and manage client assets.But because the procedure is more tailored to digital assets, it is more complicated for crypto markets.Additionally, there are differences in the needs for technology, security, and storage.
While Base is likely to become a contributor to Coinbase’s top line revenue, it is likely to take some time. The additional — possibly substantial — source of revenue could help Coinbase’s share price loosen its correlation to cryptocurrency price in the future.
With 11 Bitcoin ETFs available in the US, there is still a ton of room for cryptocurrency prices to rise.The Australian Securities Exchange may possibly approve its first Bitcoin ETFs before 2025. Six Bitcoin and Ethereum ETFs also debuted in Hong Kong in April.For Coinbase’s transaction and non-transaction revenue, these elements are likely to provide steady support for cryptocurrencies in the long run.In the short run, Coinbase’s share price may be negatively impacted by falling cryptocurrency values, but over time, thanks to the company’s many revenue streams, share prices should rise.