Coinbase’s Surge: A Look at its Future Potential

Just a year ago, Coinbase Global (NASDAQ: COIN) was trading around $75 per share. Fast-forward to today, and it has seen a major surge, climbing to roughly $210.

For those who invested in Coinbase over the last two years, you’re already enjoying significant gains. However, there are reasons to think that Coinbase may rise even higher over the next year, as it positions itself to take advantage of new revenue streams and a possible bull market in cryptocurrency. Let’s explore why.

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Diversifying Income: Beyond Transaction Fees

Coinbase has made significant progress in diversifying its income model over the past few years, contributing to its impressive stock performance.

Historically, Coinbase earned most of its revenue through transaction fees, which depend heavily on trading volume and are sensitive to market changes. To create a more stable income, Coinbase has developed other revenue sources, with stablecoin revenue now being its second-largest segment.

Over the last two years, Coinbase’s stablecoin business has thrived, particularly through its partnership with Circle, the issuer of USD Coin. As interest rates increased, Coinbase utilized funds from USDC buyers to invest in Treasury bills, which yield higher returns during such periods.

This strategy proved effective, with stablecoin revenue reaching a record $250 million in Q3 2024. However, this may decline if the Federal Reserve initiates a cycle of rate cuts in the coming year.

Despite potential declines in stablecoin income, Coinbase’s diverse revenue model could shine. While lower rates may reduce stablecoin earnings, they could also trigger a new bull market in crypto.

When interest rates fall, borrowing costs decrease, encouraging more investment. Historically, lower rates drive a strong appetite for risk, resulting in increased capital flowing into cryptocurrencies. We saw a similar trend during the bull market of 2021 when rates were close to 0%.

As projections suggest rate cuts peaking around mid-2025, Coinbase’s other revenue sources—like transaction fees, blockchain rewards, and custodial services—could significantly grow in the next year, especially with rising cryptocurrency prices.

Assessing Coinbase’s Potential Growth

To understand Coinbase’s potential in 2025, exchange volume serves as a key metric. This measure helps gauge the crypto cycle and indicates investor interest, often fluctuating with market trends.

During the peak of the last bull market, Coinbase processed nearly $550 billion in trading volume in Q4 2021. Today, the crypto market has improved but remains below those highs, with Coinbase’s volume around $226 billion. This indicates both room for growth and the possibility of exceeding past records if the market rallies again.

This upcoming market shift could greatly impact Coinbase. At the peak of the last bull cycle, over 90% of their revenue came from transaction fees. Now, that figure is just 47%, showcasing Coinbase’s successful expansion into alternative revenue sources. As trading volume rises, Coinbase will have more avenues to generate income compared to previous cycles, enhancing its revenue potential.

As the next crypto bull market develops, Coinbase stands to gain not only from increased transaction fees but also from blockchain rewards, custodial fees, and various services linked to cryptocurrency prices.

While speculative, rough calculations suggest that if exchange volume approaches or surpasses the $550 billion peak of the last bull market, Coinbase’s diversified revenue streams could yield record earnings. This would not only push Coinbase back to its all-time highs but also set it on a path to achieve new records.

So, where could Coinbase be in a year? If a crypto bull market arises alongside greater liquidity from lower interest rates, Coinbase might see a significant boost. Given its diversification efforts and increasing exchange volumes, it is plausible for Coinbase to not only revisit its former highs but perhaps set even higher benchmarks.

Your Chance at a Potentially Profitable Investment

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*Stock Advisor returns as of October 28, 2024

RJ Fulton has positions in Coinbase Global. The Motley Fool has positions in and recommends Coinbase Global. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.