Just a year ago, Coinbase worldwide (NASDAQ: MINT) was trading around $75 per share. Fast forward to today and we have seen a big increase, rising to around $210.
For those who have invested in Coinbase with me over the past two years, you are already enjoying significant gains. But there is reason to believe that Coinbase could soar even higher in the coming year as it positions itself to benefit from both emerging revenue streams and a potential bull market in the cryptocurrency space. Let’s explore why.
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If you’ve been following my reporting (or really any analysis of Coinbase), you know that the company has made significant progress in recent years in diversifying its revenue model, a key factor behind its impressive stock performance.
Traditionally, Coinbase generated the majority of its revenue from transaction fees, a model that is highly dependent on trading volume and vulnerable to market fluctuations. Recognizing the need for stability, Coinbase began building additional revenue streams, particularly stablecoin revenue, which is now the second most lucrative segment.
Coinbase’s stablecoin business has boomed over the past two years, thanks to its partnership with Circle, the publisher of USD coin. With higher interest rates, Coinbase has used funds from USDC buyers to invest in government bonds, which provide better returns during rate hikes.
This strategy paid off, with stablecoin revenues reaching a record $250 million in the third quarter of 2024. However, this flow could take a hit as the Federal Reserve implements a rate cutting cycle in the coming year.
But this is where Coinbase’s diversified revenue model will shine. While a reduction in rates could dampen stablecoin revenues, it could at the same time create a new crypto bull market.
As interest rates fall, the cost of borrowing decreases and liquidity in the economy generally increases. Historically, a low interest rate environment encourages risk appetite, often leading to more capital flowing into riskier assets such as cryptocurrencies (as seen in the 2021 bull market, when interest rates were near 0%).
With the market expecting interest rate cuts to peak in mid-2025, Coinbase’s other revenue streams (such as transaction fees, blockchain rewards, and custodial services), which closely correlate with cryptocurrency prices and market activity, could see significant growth in the market . the following year.
There is one metric that can help us assess Coinbase’s potential in 2025: exchange volume. An important metric that helps us gauge the stage of the crypto cycle: exchange volume can be seen as a measure of investor interest, and tends to rise and fall with market cycles.
At the height of the last bull market, Coinbase handled nearly $550 billion in trading volume in the fourth quarter of 2021. With the crypto market recovering but still far from the highs of the last cycle, Coinbase’s volume is around $226 billion. This not only suggests room for growth, but also the potential to surpass previous records if another bull market emerges, as crypto assets often break past old highs in these cycles.
This potential market swing has major implications for Coinbase. During the height of the previous bull run, over 90% of Coinbase’s revenue came from transaction fees. In contrast, transaction fees now represent just 47% of revenue, reflecting Coinbase’s successful expansion into other revenue streams. This means that as volume increases, Coinbase will have more ways to monetize its platform than in previous cycles, increasing its revenue potential.
As the next crypto bull market gains momentum, Coinbase is positioned to benefit not only from higher transaction fees, but also from other revenue streams such as blockchain rewards, custody fees, and other subscriptions and services, which are highly correlated with crypto prices.
Although speculative, the rough math shows that if stock market volume approaches or exceeds the $550 billion peak of the last bull market, Coinbase’s diversified revenue streams could deliver record revenues and profits. This would not only take Coinbase back to its all-time high, but could also cause it to break new records.
Where could Coinbase be in a year? If a crypto bull market does indeed take off, in addition to increasing liquidity from lower interest rates, Coinbase could see a substantial boost. With diversification efforts paying off and currency volume set to rise, it wouldn’t be surprising if Coinbase not only retests its previous highs but potentially sets new ones as well.
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RJ Fulton has positions in Coinbase Global. The Motley Fool holds and recommends Coinbase Global. The Motley Fool has a disclosure policy.
Where will Coinbase be in a year? was originally published by The Motley Fool
