Ark Invest: Coinbase is an Attractive Long-term Play

key takeaways

Coinbase’s planned product expansion will increase number and stickiness of its users over the long-term, Ark professionals say
Ark Invest bought about 200,000 shares of Coinbase across three of its ETFs on Monday and Tuesday

Coinbase’s position as a leading on-ramp to crypto and its plans to add products make it an attractive long-term play, according to an analyst and research associate at investment management firm Ark Invest.

The crypto exchange is a market leader due to its emphasis on product excellence and regulatory compliance, Ark analyst Maximilian Friedrich said during a webinar on Tuesday.

Coinbase accounted for roughly 10% of spot trading volume in the crypto market in 2021, he added.

“In the long-term, we think that Coinbase will continue to capture trading volume market share, which we estimate is going to grow at a significant rate, and really innovate on the product side, which we think is going to increase the number and the stickiness of the users on the platform,” he explained.

Buying more Coinbase

Ark Invest reported buying 86,295 shares of Coinbase for its Innovation ETF (ARKK) on Monday. That same day, it added 57,223 shares to its Fintech Innovation ETF (ARKF).

Coinbase was the fifth-largest holding in ARKK, as of Tuesday, with a weighting of about 5.3%. Coinbase’s nearly 9.1% weighting in ARKF makes it the portfolio’s second-largest holding.

The firm also added 54,114 shares of Coinbase to the Ark Next Generation Internet ETF (ARKW) on Tuesday. The crypto exchange has a 6.8% weighting in that fund, behind only Tesla and ahead of the Grayscale Bitcoin Trust (GBTC).

Coinbase’s product expansion potential

Though a good portion of Coinbase’s revenues come from trading, Ark Research Associate Nishita Jain said during the webinar, the firm expects its revenue stream to diversify as it expands its product set.

Bank of America Research Analyst Jason Kupferberg said recently that Coinbase’s revenue diversification is likely to accelerate in 2022 and beyond. He upgraded Coinbase to a buy rating at the time and predicted that the crypto platform’s subscription and services revenue, which was 12% of its total net revenue in the third quarter of 2021, will rise to 16% by next year.

Friedrich and Jain said that the upcoming launch of Coinbase’s NFT marketplace is a significant opportunity for the company, highlighting OpenSea. As the largest NFT marketplace, OpenSea secured $300 million in Series C funding earlier this month, bringing its post-money valuation to $13.3 billion.

Coinbase also announced a direct deposit feature last year, and the company announced in November that it made Coinbase Wallet available as a standalone browser extension.

“We really see Coinbase as a play to the broader crypto ecosystem and really connecting users through both the on-ramp and allowing them to choose the ways they want to interact with the crypto ecosystem,” Jain said.

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