
Brian Armstrong, chief executive officer of Coinbase World Inc., speaks for the duration of the Messari Mainnet summit in New York, on Thursday, Sept. 21, 2023.
Michael Nagle | Bloomberg | Getty Visuals
Now that the SEC has approved the generation of bitcoin exchange-traded money, Coinbase’s place in the crypto sector is poised to get a dramatic switch.
In the months forward, Coinbase will support shepherd some of the major names in asset administration, like BlackRock, Franklin Templeton, and WisdomTree, into the digital asset ecosystem as their custodial companion of preference. That implies Coinbase will be central to the storage and safekeeping of the property for people corporations.
Although custody revenue presents a significant expansion chance for Coinbase in the in close proximity to time period, some marketplace analysts are worried that the company’s main transaction enterprise is at threat owing to the myriad methods traders will be capable to access bitcoin. Alternatively of acquiring to go to an asset exchange these types of as Kraken, Binance, or Coinbase, they will be in a position to commit in the digital forex through the same system they already use to obtain inventory and bond ETFs.
In a report Dec. 4, analysts at Bernstein predicted that in less than 5 several years, 10% of the global source of the world’s premier cryptocurrency, or approximately $300 billion, will be managed by ETFs. The organization known as it the “most significant pipe at any time built concerning classic economical markets and crypto fiscal marketplaces.”
In 2023, Coinbase’s stock was a person of the prime performers in the tech marketplace, soaring practically 400%. Substantially of that rally was tied to bitcoin, which increased 150%. But part of the outperformance relative to bitcoin was due to the pleasure that new ETFs would generate a lot more curiosity in crypto and be a boon for Coinbase.
“ETFs really should expand the pie and provide new people and institutions into the cryptoeconomy,” Coinbase Main Operating Officer Emilie Choi claimed on the firm’s most modern earnings get in touch with in November. “They should really increase believability to the industry, and we should see amplified liquidity and industry steadiness as we have observed with other asset courses these types of as gold.”
From June 15, the day that BlackRock — with its $9 trillion in assets below administration — submitted for a so-known as spot bitcoin ETF and named Coinbase its crypto custodian, shares in the exchange rose from close to $54 to more than $170 by the end of the year.

JPMorgan analysts wrote in a November report that Coinbase would be a critical beneficiary of the coming ETF growth, given the fast upside of custody service fees from asset professionals.
“We estimate Bitcoin custody and surveillance earnings will additional than offset decline in Bitcoin trading volume as property migrate to ETFs,” the analysts reported.
Some of the momentum on Wall Street has light to begin 2024, with the inventory down 14% considering the fact that the calendar turned. In accordance to Mizuho analysts, there could be additional ache to occur.
“With the hype close to Bitcoin ETFs likely to attain a climax in the coming weeks, COIN bulls could knowledge a tough awakening when they know how minimum the profits influence is,” Mizuho wrote in a take note Thursday.
Mizuho’s analysts have the equivalent of a sell score on the inventory and were being bearish during previous year’s rally, ending 2023 with a $54 rate target, by much the lowest between analysts tracked by FactSet.
The battle for market share
Virtually 50 % of Coinbase’s profits will come from the fees it fees on transactions, this means the company desires individuals to maintain utilizing the exchange to invest in and trade bitcoin and other digital currencies.
In the third quarter in 2023, total transaction earnings accounted for 46% of web earnings. Even so, Coinbase has been diversifying into new corporations. In 2022, transactions manufactured up nearer to 75% of earnings.
Much more than one-quarter of Coinbase’s revenue in the third quarter came from desire revenue on the exchange’s stablecoin reserves, which includes Circle’s U.S. greenback-pegged USDC coin. Stablecoin earnings extra than doubled from a calendar year before mostly due to climbing interest rates.

“A couple many years in the past, our business at Coinbase was 95% investing charges, and we manufactured a massive work close to the time it went general public to get started diversifying our profits,” CEO Brian Armstrong advised CNBC in a the latest interview. “What’s wonderful is that now we have many sources of earnings — some of them in a substantial curiosity amount setting go up, some of them in a reduced curiosity fee setting go up.”
Nonetheless, transaction fees stay a essential revenue driver for the trade. And contrary to investing platform Robinhood, which allows investments in a vast array of asset kinds, Coinbase won’t enable for trading of ETFs.
“Location bitcoin ETFs surface poised to choose quantity away from crypto exchanges,” said Bryan Armour, director of passive techniques analysis for North The us at Morningstar.
JPMorgan anticipates that new account advancement will sluggish as “newbie crypto traders get their first publicity and potentially final exposure through ETFs rather than Coinbase,” including that quite a few of these neophyte traders will under no circumstances go over and above bitcoin, “hence never ever needing the services of a Coinbase.”
Mizuho sees the revenue from custody service fees as quite modest supplied how considerably buyers have pushed up the inventory. The company predicts ETF approval might insert just $25 million to $30 million in annual custody expenses, with yet another $200 million to $210 million of new income “if incremental Bitcoin inflows deliver supplemental spot trading alternatives.”
With a collective attain of up to $240 million in further yearly earnings, “this represents just mid-to-high one-digit percentage upside vs. present-day 2024 consensus,” the Mizuho analysts wrote. They explained they “do not think the nearly 400% improve in the inventory in anticipation of ETF acceptance justifies our fair estimate for the ETFs’ precise contribution to income.”
A Coinbase spokesperson advised CNBC in an emailed assertion that, in addition to custody charges, the organization will make revenue by giving companies these as agency trading, matching and settlement, and financing to ETF issuers.

“The system thinks that spot ETFs will be a good catalyst for the entire crypto place, incorporating believability, raising liquidity, and bringing new members and institutions into the cryptoeconomy,” the spokesperson mentioned, reiterating prior remarks from Coinbase executives.
Opposition could also generate pricing tension.
ARK, Invesco, Fidelity, WisdomTree, and Valkyrie are all providing specials that include rate-cost-free trading for a sure period of time. Some others are opting for discounted service fees.
Coinbase’s transaction charge differs, with a max of .6% on transactions up to $10,000 in worth. In the company’s most latest quarterly earnings get in touch with, Choi reported that Coinbase would not approach to decrease transaction costs to make them additional competitive with other platforms where by ETFs are remaining traded at significantly lessen rates.
The transaction costs on Coinbase also range among its Pro system and the retail app, where charges are bigger. For retail transactions up to $1,000, the fee ranges from 1.5% to 3%.
Nonetheless, JPMorgan analysts claimed higher efficiency and transparency in fairness marketplaces, paired with lessen costs to execute, could push much more cryptocurrency buying and selling to ETFs above time, which could eventually “force Coinbase to reduced commissions and to slender buying and selling spreads, reversing the multi-quarter improve we’ve witnessed in Coinbase’s retail revenue seize.”
Continue to, Coinbase has its believers amid crypto fans, these types of as Nic Carter, a lover at Castle Island Ventures.
“They are critical infrastructure in phrases of custody, investing, and surveillance for the the vast majority of the ETF proposals,” Carter said. “Even however it may have an effect on their service fees at the margin I believe they are however winners below.”
Watch: Previous SEC Chair Jay Clayton on improvements in bitcoin trading
