Coinbase’s Q3 Earnings Report Shows Declining Revenue and Profits
Coinbase, the popular cryptocurrency exchange, experienced a 4% drop in its stock price during after-hours trading after releasing its third-quarter earnings report. The report revealed a decrease in revenue and profits compared to the previous quarter.
The Bull Case for Coinbase: Transforming into the Next Square
Ram Ahluwalla, CEO of Lumida Wealth Management and a crypto enthusiast, believes there is still potential for Coinbase to thrive. However, he suggests that the company needs to make some changes in order to unlock value and become “the next Square.”
The Path to Profitability and Revenue Growth
Ahluwalla points out that Coinbase’s top-line revenue declined along with the overall crypto market in Q3. He acknowledges that the path to GAAP profitability is still intact but mainly through cost-cutting measures. To maintain its high valuation multiple, Coinbase needs to demonstrate strong revenue growth.
The Payments Opportunity for Coinbase
Ahluwalla identifies payments as the most immediate opportunity for Coinbase. By leveraging its wallet and exchange assets along with its new Base protocol, the company can enter the peer-to-peer and merchant crypto payments space, competing with Square and PayPal. However, Coinbase must address the challenge of getting merchants and individuals to adopt crypto payments.
The Bitcoin ETF and Cannibalization Concerns
Ahluwalla believes that Coinbase’s planned Bitcoin exchange-traded fund (ETF) product could capture a significant portion of the market, generating custody fee revenue. However, he warns that ETFs may cannibalize Coinbase’s higher-margin exchange revenue as retail investors opt for the convenience of ETFs over direct crypto purchases.
Expanding Internationally and Banking Charter
Coinbase’s growth strategy includes international expansion and the launch of U.S. derivatives. However, Ahluwalla argues that the company should prioritize obtaining a banking charter, developing tokenization capabilities, and seizing the payments opportunity. Having its own bank would greatly enhance Coinbase’s revenue potential.
Lobbying for Regulatory Reform and Demonstrating Strong Revenue Growth
Ahluwalla suggests that Coinbase should lobby Congress to reform banking regulations, allowing tech companies to own banks. He believes this would receive widespread support within the industry. In the meantime, Coinbase needs to exhibit robust revenue and user growth to justify its valuation.
Hot Take: Real-World Utility and Payments Opportunity for Altcoins
Ahluwalla concludes that in the near term, Coinbase should focus on delivering more real-world utility for altcoins and capitalizing on the payments opportunity. These strategies could further drive Coinbase’s success in the crypto market.
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