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Coinbase: Crypto Summer and Stablecoin Tailwinds?

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

The fortunes of Coinbase, touted as America’s leading cryptocurrency exchange, has been considered to be a leading barometer of interest in crypto assets for quite a while now. The company’s Q3 earnings release, however, heralds some interesting signs of change.

Revenue came in strong at $674.1 million – an increase of 14.2% over that in the same time last year and $20.6 million higher than analysts’ consensus opinion. In the Year Till Date (YTD) versus the same period last year, stablecoin revenue has skyrocketed by 522%. The reason for this massive spurt in stablecoin revenue lies in the way the exchange handles USDC, the top stablecoin in its network. Effective August 18th of this year, Coinbase has started earning a pro rata portion of income earned on USDC’s reserves and other related activities. Since the issuer of USDC backs the stablecoin with assets such as dollar deposits and short-term securities, the rise in interest rates has been a highly profitable proposition for both issuer and Coinbase.

There is a factor for concern for the overall cryptocurrency market: transaction volume of crypto assets has fallen below total value of crypto assets in dollar terms for the first time since 2022.

In the 3 quarters of 2023, Coinbase has seen a 16% decline in Monthly Transacting Users (MTUs) – defined as consumers who actively or passively transacts in one or more products on the platform at least once during the rolling 28-day period ending on the date of measurement – and a 54% decline in trading volume. Consumer trading volume is down 69% while institutional volume is down 50%.

Total transaction revenue in the YTD is 51% lower than in the same period last year. 48.7% of all customer crypto assets held by customers and 37% of transaction revenue is from Bitcoin. The company has registered a loss in trading volume in virtually every crypto asset except for Bitcoin, wherein the share of trading volume registered a 28% increase. Stablecoin USDC witnessed a 400% increase on the back of a strong dollar continuing to throttle the competitiveness of American goods and services and a flight of capital from broader equity markets into a narrow band of instruments that includes Treasury bills, high-quality corporate paper, and dollar-backed assets. The company’s stablecoin business is a pretty straight-forward business with enormous potential: they’re often needed to imply “real world value” onto various crypto chains and is expected to continue to capture and develop interest in the future.

Coinbase also just received a full business license to operate in Singapore in a bid to attract a lot of international business, predominantly institutional players. The U.S. accounts for 89.5% of the business in YTD 2023, which is up from 82.8% in the same period last year. The Singapore connection might prove to be transformative for the company’s bottom line in the future.

It is perhaps intuitive that – given its preponderance in the company’s revenue streams – Bitcoin’s trajectory informs that of Coinbase stock. While Bitcoin is meandering in the near term, it is noted that BTC generally tends to rally ahead of and following its halving cycles.

A “halving” has been a pivotal event for Bitcoin’s blockchain wherein the reward for mining 1 Megabyte (MB) of transaction records is cut in half. Empirically, the rate at which new Bitcoin is created decreases by half for every 210,000 blocks mined — roughly every four years. This has happened three times in the past.

Since 2020, network participants validating transactions have been awarded 6.25 Bitcoins (BTC) for each block successfully mined. The next halving is expected to occur in early-to-mid 2024. Thus, on account of the increasing scarcity of Bitcoin, there is some support for BTC’s price to rally.

However, it can be seen empirically that the price performance of Coinbase has exceeded that of Bitcoin over the past one year.

This suggests an overall conviction that Coinbase isn’t just about Bitcoin and is looking to grow beyond the U.S. The road ahead can be expected to be rocky but there are some tailwinds for its stablecoin business if rates stay “high long” and the U.S. dollar continues staying strong. However, like with the fixed-income market, resurgence in interest towards broader U.S. equities would likely prove to be a damper for its non-Fiat crypto asset values and volumes. All in all, it might pay to keep an eye on the company’s upsides and downsides.

Professional investors interested in making tactical strategies on the trajectories can consider CON3 – which gives a magnified daily-rebalanced exposure to the upside of the stock – as well as CO3S, which does the same on the downside.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Violeta Todorova

Senior Research

Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.

Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.

Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.

Julian Manoilov

Marketing Lead

Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.

Oktay Kavrak

Head of Communications and Strategy

Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.

È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.

Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.

Sandeep Rao

Research
Sandeep è entrato a far parte di Leverage Shares nel settembre 2020. È responsabile della ricerca sulle linee di prodotto esistenti e nuove, su asset class e strategie, con particolare riguardo all’analisi degli eventi attuali ed i loro sviluppi. Sandeep ha una lunga esperienza nei mercati finanziari. Iniziata in un hedge fund di Chicago come ingegnere finanziario, la sua carriera è proseguita in numerose società ed organizzazioni, nel corso di 8 anni – da Barclays (Capital’s Prime Services Division) al più recente Index Research Team di Nasdaq. Sandeep detiene un M.S. in Finanza ed un MBA all’Illinois Institute of Technology di Chicago.

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