Coinbase Q3 2023 Earnings: The Elephant in the Room

Last Thursday, Coinbase (COIN) reported Q3 earnings that beat analyst expectations.

The positive headline led to many publications and Twitter voices all of a sudden turning bullish on the company in the face of rising BTC prices.

And that’s all well and good. But, while they are predicting an increase in the company’s stock price, it’s disingenuous for them to not also point out some of the negatives from the quarter.

But before we get to that, here are a few key numbers from the earnings:

• Total trading volume fell to $76 billion, from $159 billion a year earlier.

• The company’s loss narrowed to $2.27 million, from $544.6 million a year earlier.

• Revenue rose to $674.1 million, up 14%

• Total transaction revenue fell 21% to $288.6 million from a year earlier

• Monthly transacting users fell 21% to 6.7 million

As we have explained before, Coinbase is keen on highlighting their Adjusted EBITDA as the metric to watch. Q3 marked the third consecutive quarter of positive adjusted EBITDA at $181 million.

A Double Edged Sword

Our gripe arises around the lack of introspection about what a potential ETF might mean for the company. The truth of the matter is that an ETF is a double edged sword.

On one hand, if Coinbase became the leading (re: only) custodian for the pending bitcoin ETFs, the company’s custodial revenue would be set to explode from the ~$16 million it is at today.

On the other hand, the spot bitcoin ETF would significantly eat into the company’s transaction volumes as investors move to the “easier” option.

Now, there is an argument that a spot bitcoin ETF would significantly increase the TAM of individuals and institutions looking to gain exposure to BTC, but the question is: will it be enough to offset current transaction revenues?

And we aren’t the only one’s asking. Twice on the earnings call, analysts asked questions to the executive team about how the company will respond to reduced trading volumes in the face of ETFs without any real clear answer from the Coinbase team.

So next time you see a story or a Twitter thread hyping up how Coinbase is going to “kill it” over the coming quarters, ask yourself: what happens in the face of an ETF?

Backing up, before you start thinking that we have given up on Coinbase, think again. We are still bullish on the company as it still has plenty going for it.

For example, although BTC and ETH may be good candidates for ETFs, most other altcoins will not be. Traders will still need a way to get exposure to their favorite PEPE or DOGE!

More seriously, Coinbase continues to push on their BASE offering which now has more than 1 million transacting wallets and $500 million in assets. If Coinbase truly is able to implement payments into BASE / Coinbase Wallet, the company overnight broadens from being a bank / exchange, to competing with payment providers such as Paypal, Square, or Stripe.

We believe that Coinbase actually doesn’t know where the future lies. It may be in international expansion, or custody, or BASE. For now, the goal is to ship product as fast as possible with the lowest headcount possible.