Coinbase cross-selling on display during impressive Q1

The crypto exchange’s ability to cross-sell its products is its “superpower,” Bitwise’s Alyssa Choo says


Coinbase CEO Brian Armstrong | Source: TechCrunch "775208327GB00107_TechCrunch" (CC license)


Analysts said it would be a strong quarter for Coinbase. Boy, were they right.

The crypto exchange saw a storm (the perfect kind, for its purposes) come together in the first three months of 2024 as bitcoin’s price reached new ground.  

Coinbase’s ability to cross-sell its products is its “superpower,” according to Alyssa Choo, crypto equities specialist at Bitwise Asset Management.

While the crypto price rallies and launch of spot bitcoin ETFs made it a favorable environment for the company, the second quarter could prove a tougher period to post the same kind of numbers.

Coinbase had a higher adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — in the first quarter than it did during all of last year. That number hit $1 billion, up from $324 million during the quarter prior. 

Read more: Coinbase earnings show a bullish start to the year

Net income also broke the $1 billion mark — at nearly $1.2 billion — for the first time since the last bull cycle in early 2022.

“However, Coinbase’s net income benefited from $737 million in pre-tax crypto asset mark-to-market gains, the vast majority of which were unrealized,” Choo noted. 

This reflects the Financial Accounting Standards Board’s new rule. Previously, if a company was holding a crypto asset and the price of said asset rose, entities could not mark up the value unless it sold its crypto.

Transaction revenues doubled quarter over quarter, mostly in line with analyst expectations. Consumer trading volume and institution trading volume was up 93% and 105%, respectively. 

While Choo said she expects these transaction trends to continue throughout the year, GraniteShares Chief Revenue Officer Paul Marino isn’t so sure.

Coinbase generated about $300 million of total transaction revenue in April, the company said in its Thursday shareholder letter — slightly behind the roughly $360 million monthly average it saw in Q1. 

“Despite a very solid report, the stock traded lower after hours with concerns that trading volumes will decrease based on downward movement in bitcoin and the fact that more insider sales occurred in the quarter than any other time since Coinbase went public,” he told Blockworks. 

Though bitcoin hit a new all-time high of about $73,000 in mid-March, the asset was trading at about $61,000 on Friday morning — down 5% in the last week

Coinbase’s stock price hovered around $226 just after 10 am ET — down about 1% on the day. 

The crypto exchange would benefit from interest rates staying flat or declining, Marino noted, as well as continued institutional crypto buying. 

A lift from the ETFs, stablecoin revenue

Coinbase is a custodian for eight of the 11 US spot bitcoin ETFs — a fund category that has collectively tallied $11.2 billion of net inflows since launch on Jan. 11. 

Its assets under custody rose 69% from the prior quarter to $171 billion, while custodial fee revenue jumped 64% to $32 million.

Despite BlackRock and Fidelity products leading a flood of inflows into the category out of the gate, demand for those funds has stalled in recent weeks. 

Read more: Bitcoin ETF snapshot: A few firsts during another week of outflows

But in the first quarter, the ETFs seemed to unlock customer engagement across the crypto exchange’s Coinbase Prime products, Choo noted. 

The institution-focused platform — offering custody, trading, financing and staking —

notched record trading volume and active clients, according to Coinbase’s letter. About 40% of Coinbase’s institutional clients engaged with three or more of the Prime products during the quarter. 

Base becoming more key to the exchange

Coinbase started seeing major traction for its layer-2 network, with developer activity increasing eight times quarter over quarter.  

Base has processed over twice as many transactions as the Ethereum network in the last 30 days, Coinbase noted.

Read more: Based culture: Inside Coinbase’s L2 feat

“Base has strong unit economics, so as transaction volumes grow, Base should become a material contributor to the company’s revenue and profits long term,” Choo told Blockworks. “Coinbase’s superpower here is their ability to cross-sell products.

The company already has more than 100 million verified users on its platform, mainly engaging in trading activities, she pointed out.

“Now that they’ve made Base faster and cheaper to use with fee reduction by about 80% through protocol upgrades, over time it should become accessible and attractive to use for non-crypto native Coinbase users,” Choo added. 

By Coinbase starting to integrate USDC on Base, it could also see a continued lift in its stablecoin revenues. 

Interest earned on Coinbase USDC reserves was $197 million during the quarter, up 15% from the fourth quarter of 2023.

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