Stocks of cryptocurrency stocks Coinbase global (COIN 4.92%) is down more than 85% from its peak in late 2021 when the crypto market exploded. Business is down, prices have fallen, and there are concerns that margins will be squeezed throughout the year.
As dire as operating conditions are today, Coinbase continues to build for the future. And if it can execute on its plan to become more than just an exchange, it could be one of the biggest winners in the future of crypto and Web3.
exchange problem
Coinbase made its money by becoming a popular crypto exchange, particularly in the US, but there are other exchanges with lower fees, and there will of course be price pressure on Coinbase to reduce transaction costs for all users. Combine that with overall declining transaction volume, and you’ve got a recipe for declining sales and margins in 2022.
In the first quarter of 2022, retail business volume decreased sequentially from $177 billion to $74 billion. Much of the revenue comes from retail, so that was the biggest reason for the decline in revenue and earnings.
There is no easy solution to the replacement problem. Margins will continue to shrink and retailers may not be back anytime soon. So Coinbase has to look elsewhere for revenue.
Business is where the money is
Coinbase may be known for being a popular exchange for traders, but the future of its business could be commercial services. Subscriptions and services revenue grew 169% year over year in the first quarter of 2022, while transaction revenue fell 34%.
There are many options such as B. Staking services that charge 25% commission to help users staking cryptocurrencies. The custody fee was also $31.7 million and I think it could increase as the company offers security products to the users. Coinbase wants to combine its app and wallet into one easy-to-use platform that could make user onboarding easier.
COIN Sales Data (Quarterly) from YCharts.
Cloud services could be a big part of a company’s future, and developers increasingly want to build on Web3. There is no point in building wallet integration, trading tools or trading functionality when they are available through the Coinbase Cloud. This could be the cloud giant for Web3 companies.
For example, Coinbase is one of the providers of Shopify’s crypto payment platform, and the same tools are available to everyone. If you think commerce will be disrupted by the “crypto rail” — or the way cryptocurrency moves money from a customer to a merchant — rather than credit or debit cards, Coinbase could be a bigger player.
Crypto and NFTs will one day be invisible
If I have to sum up the case for Coinbase over the long term, it’s that no company does a better job of making cryptocurrencies and NFTs invisible than Coinbase. As someone told me at NFT.NYC, the world’s largest non-fungible token conference, “This shouldn’t be an event for most people.”
What does that mean? This means users don’t have to worry about security phrases that could compromise their accounts or wallet integration, or sign malicious transactions in Web3. You should feel comfortable using Web3 tools and let the technical details fade into the background.
I think we’ll see that as Coinbase integrates more of its app and wallet products, launches an NFT marketplace, and makes Checkout with Coinbase available for merchants. When concert tickets are moved to the blockchain, it is not an event as the tickets only go to your Coinbase app. Or if a coffee shop sends you a loyalty NFT, it can sit in the background of your Coinbase app, invisible to you because it’s on the blockchain but hidden from view.
Focus on the next billion users
Coinbase is building tools to connect the next billion people to crypto, NFTs and Web3 more broadly. That’s what the company is doing in this bear market, and if it succeeds, the company could emerge stronger than ever.
Coinbase Global, Inc. and Shopify have positions near Travis Hoium. The Motley Fool owns Coinbase Global, Inc. and Shopify reviews and recommends it. The Motley Fool recommends the following options: long January 2023 $1,140 call on Shopify and short January 2023 $1,160 call on Shopify. The Motley Fool has a disclosure policy.
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