Back from the dead, Coinbase Global (COIN +6.89%) finds itself up more than 500% since the beginning of 2023. Yet as impressive as Coinbase's resurgence has been, there is plenty of reason to believe it has more room to run.
With a little bit of digging, it will become clear that the reclamation of its previous all-time high of $343 is well within the realm of possibilities and that the first publicly traded crypto company has what it takes to soar to new levels.
Image source: Getty Images.
A little background first
Around two years ago, Coinbase's future prospects looked grim as a brutal crypto winter enveloped the market. With investors fleeing crypto, Coinbase saw its profits take a massive hit.
At the depths of the bear market, Coinbase posted a whopping $1 billion loss in the second quarter of 2022 as its main source of revenue, transaction fees, dried up. It was during this time that Coinbase realized it had a problem. With more than 90% of revenue coming from transaction fees, the company quickly began to build.
It took some time, but now Coinbase is beginning to reap what it sowed. Today, the company derives just 55% of its total revenue from transaction fees and boasts a well-rounded business model as its new subscription and services segment begins to generate income.
With products like custodial fees, blockchain rewards, and stablecoin interest, Coinbase displayed remarkable resilience and a knack for innovation. Yet, as impactful as these products have been, there is one that might completely change the company's finances and future trajectory.
What is Base?
In August 2023, Coinbase announced the launch of its own blockchain, an Ethereum-compatible Layer 2 called Base. While undoubtedly novel, its initial reception was a mixed bag. No other company had ever launched its own blockchain. In addition, for Base to become a viable asset for Coinbase, it would need to attract users, which is a task easier said than done.
However, since August, what occurred has been nothing short of remarkable. With its low fees and fast speeds, developers and users alike found Base to be the ideal blockchain to experiment with new decentralized applications and push the limits of what's possible.
Base by the numbers
In a matter of months, Base started racking up major numbers. Thanks to popular decentralized social networks like Farcaster and Friend.tech, a frenzy of activity ensued as Base's user-friendly, cheap, and fast blockchain became the hottest thing in crypto.
Today, Base has become one of the most popular Layer 2's. It is home to more than 8 million users and currently ranks No. 1 in terms of transaction volume over the last month, outdoing the likes of household names like Polygon and Optimism.
NASDAQ: COIN
Key Data Points
Naturally, with more users and more transactions, the value on-chain skyrocketed. From January to April, Base's total value locked went from $444 million to more than $1.5 billion, making it the sixth-most-valuable blockchain in the DeFi economy.
Of more importance are the profits it is bringing in for Coinbase. While a bit technical, all investors need to know is that for every transaction that occurs on Base, Coinbase gets a cut. And this cut has grown considerably over the past few months.
From August 2023, when Base launched, to February 2024, Base generated roughly $6.5 million in profits. Not bad, but considering that Coinbase's quarterly income hovered around $90 million last year, the profits from Base were but a small drop in the bucket.
However, things changed significantly in the last two months. Since the beginning of March, Base has produced nearly $35 million in profits as users flocked to the blockchain in the wake of Ethereum's Dencun upgrade, which lowered fees on blockchains like Base.
If it were to keep its current pace, Base could produce somewhere around $200 million on an annual basis. When considering that Coinbase posted a net income of $95 million in 2023, Base's potential becomes all the more compelling.
The opportunity at hand
The success of Base serves as a microcosm of the broader transformation Coinbase has undergone in recent years. While Coinbase has made significant strides in diversifying its revenue streams and solidifying its position as a leading player in the crypto industry, Base stands out as a potential game-changer for its future success.
If Base follows the trajectory of other successful blockchains and continues to attract users and developers, it is poised to significantly enhance Coinbase's revenue-generating capabilities. Given that Base is still in its early stages and operating within a bullish market environment, the potential for growth and profitability is substantial.
Looking ahead, Coinbase's transformation into the ultimate crypto platform is evident in its evolution from a simple exchange to a multifaceted ecosystem offering a wide range of products and services. However, with its stock trading at around $200, it seems Wall Street may not have fully grasped this transformation. For the savvy investor who recognizes Coinbase's revamp, today presents an opportune moment to position portfolios for long-term success.
