Q4 2023 Earnings Summary
- Strong Growth in Derivatives Trading: Coinbase is experiencing significant growth in derivatives trading volumes on their International Exchange, hitting daily all-time highs, including a recent milestone of $700 million in 24-hour volume. The derivatives market represents approximately 75% of all crypto trading volume, indicating substantial potential for further growth.
- Positive Impact from Bitcoin ETFs: The approval and launch of Bitcoin ETFs have been net positive for Coinbase, leading to elevated engagement and net inflows across both retail and institutional clients. Coinbase won 8 out of 11 spot Bitcoin custody mandates and now custodies about 90% of the $36 billion in Bitcoin ETF assets, enhancing revenue through custody, trading, and financing services. , ,
- Growth in Institutional Business through Coinbase Prime: Coinbase's institutional offering, Coinbase Prime, which has a higher fee rate than the exchange, has seen strong growth. This contributes to increased institutional transaction revenue and positions Coinbase to benefit from increased institutional adoption of crypto assets. ,
- Regulatory uncertainty due to ongoing SEC litigation introduces risks to Coinbase's operations. Despite the company's confidence in a favorable outcome, the lack of a clear timeline and potential for adverse decisions could negatively impact the business.
- Lower take rates in derivatives trading might limit revenue growth despite increasing volumes. While Coinbase is expanding its derivatives offerings, the focus on gaining market share involves competitive pricing, which could further impact margins.
- Operating expenses exceeded guidance, and there is potential for expenses to grow if the business scales up, posing concerns about scalability and profitability during a bull market.
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Institutional Business Growth
Q: What's driving the institutional take rate increase?
A: Strong growth in Coinbase Prime, which has a higher fee rate than the exchange, led to a larger share of volume in Q4, increasing the blended average fee rate on institutional revenue. The approval of Bitcoin ETFs has been net positive, driving elevated engagement and net inflows on institutional and retail in Q1 to date. -
Retail Take Rate and ETFs
Q: Will Bitcoin ETFs cause retail fees to decline?
A: Despite Bitcoin ETFs, Coinbase has not seen fee compression or cannibalization on its platform. Customers continue to choose Coinbase for its product breadth and security. ETFs have been net additive, with $4 billion of net inflows industry-wide since their launch. -
Operating Expenses in Bull Cycle
Q: Will OpEx rise if revenue grows in a bull market?
A: Variable costs like transaction expenses, including miner fees and staking rewards, will track with revenue growth. Other variable costs, like customer support, may increase modestly. Coinbase can absorb significant volume growth without adding expenses. In a prolonged upmarket, they may choose to increase expenses but will communicate transparently. -
Derivatives Trading Growth
Q: How is derivatives scaling and future potential?
A: Coinbase is hitting daily all-time highs on its International Exchange. In Q4, they added 11 new markets, now covering about 70% of global TAM. They traded about $16 billion in notional volume in Q4 , and recently surpassed $700 million in 24-hour volume. Derivatives trading is the majority of volume but with lower take rates. -
Owning Bitcoin vs ETF
Q: Benefits of owning Bitcoin outright versus an ETF?
A: Coinbase has strong advantages in custody solutions and Prime services, attracting customers who want to own Bitcoin directly. Most customers own more than two crypto assets, and in Q4, 42% of trading volume was in assets other than Bitcoin, Ethereum, or USDT. ETFs introduce new capital, but customers often explore other assets and services on the platform. -
Prime Business Details
Q: What services does Coinbase Prime offer, and how is it monetized?
A: Coinbase Prime is a one-stop shop for institutions, offering custody, trading, and financing services. Institutional transaction revenue largely comes from trading, while custodial fees are reported separately. Financing is included in other subscription and services as it is nascent and growing. -
Sales and Marketing Spending
Q: Why is sales and marketing spend flat despite growth opportunities?
A: A large part of spend is in brand marketing with seasonality due to an NBA contract. They will spend materially less on that in Q1, leading to a slightly down guide. Coinbase continues to invest where they see strong ROI, including testing policy marketing. -
Payments Strategy and Monetization
Q: What's the vision and revenue model for payments?
A: Coinbase is exploring payments in 2024, focusing on reducing transaction costs and times. Use cases include emerging markets, cross-border payments, B2B, remittances, and earning yield. Monetization is early-stage with opportunities via Base and USD Coin, but no forecasts yet. -
Legal Challenge Against SEC
Q: Status of challenging SEC's refusal to engage in rulemaking?
A: Coinbase filed a petition in the Third Circuit Court challenging the SEC's decision. Briefing begins next month and continues into the spring. They are confident the court will side with them. -
AML Investments and Congressional Statements
Q: Reaction to Congress confirming crypto isn't a popular tool for terrorists?
A: Coinbase is pleased with the correction of the record. They have significant investments in AML, with a large compliance team and best-in-class approaches. Undersecretary confirmed that traditional finance is preferred by bad actors. Coinbase is proud to be one of the most compliant crypto companies in the world.