Is it finally time to consider this crypto company?

The ascent of Coinbase Global (COIN 0.63%) stock after it debuted on Nasdaq in April 2021 probably marked the peak of the last crypto bull run. With a peak of $369, shares of the crypto exchange have had a brutal descent since, losing more than 80% of their value, trading at around $63. Most of the blame for this lackluster performance can be placed on a weaker cryptocurrency market.

Coinbase generates the bulk of its revenue from transaction fees on cryptocurrency purchases and sales on its trading platform. But the current crypto winter saw Coinbase’s revenue drop more than 60% in the past year. Still, despite this setback, the company is building for a brighter future.

The institutions are coming

One of Coinbase’s most impressive achievements in 2022 was related to the evolution of offering institutional investors crypto exposure. Although retail investors are more numerous, institutional investors usually have much more capital at their disposal.

Coinbase is building out its institutional product suite to take advantage of this lucrative universe of investors. Called Coinbase Prime, this software allows institutional investors to easily gain data insights and buy crypto. Coinbase’s goal is to become the primary solution for institutional crypto investors — and the numbers seem to prove it’s on that track.

Since 2020, the number of institutional customers using Coinbase Prime has doubled and now has more than 14,500 users. But arguably the most important institutional client Coinbase partnered with happened just this year.

In August 2022, the world’s largest asset management company, Black stone (BLK -0.96%), agreed to a landmark deal with Coinbase. Although Bitcoin will be the only cryptocurrency available to BlackRock customers, the plan is for Coinbase Prime to integrate with BlackRock’s portfolio management software, Aladdin, allowing users to gain exposure easily and seamlessly within the existing product.

This agreement can provide two advantages. First, it signals a growing trend among institutional investors looking to gain exposure to crypto. As a leader in asset management, BlackRock’s actions are likely to be followed by other competitors such as Fidelity, Charles Schwaband Vanguard.

Second, getting attention from BlackRock gives Coinbase a sort of seal of approval and makes it the de facto leading provider of institutional crypto solutions.

More progress is being made

To further diversify revenue, the crypto exchange is creating new business models that revolve around subscription-based services, rather than just transaction fees.

CEO Brian Armstrong gave investors a clear vision of where the company is headed, saying he hopes Coinbase can “get to a place where more than 50% of our revenue is subscriptions and services.” Subscriptions and services now account for 18% of profits, but have grown from just 5% last year.

To reach this lofty goal, Coinbase will continue to develop more products and new models. The first is called Coinbase Cloud and provides blockchain developers with infrastructure to build Web3 applications. It is similar to Amazon Web services, but tailored for blockchains.

In addition, Coinbase is expanding its staking business. Coinbase makes staking easy for users and benefits from this model in two ways. By staking, Coinbase earns blockchain rewards and also generates profit from custodian fees users pay to securely store their cryptocurrency on Coinbase.

Finally, Coinbase offers a new trading plan for investors who regularly buy and sell cryptocurrencies. For $30 a month, investors can now waive those pesky transaction fees and make unlimited trades.

Unfavorable conditions limit growth

For Coinbase stock to escape these depths, it will need more than just some changes to its business model. Until macroeconomic conditions such as inflation and interest rates begin to fall, the chances of Coinbase generating any real momentum are slim. As Armstrong said, this latest bear market “coincidentally coincides with the broader macro environment falling.”

But should Coinbase continue to build good products, Armstrong believes it’s “going to do well over the next five or 10 years.” Justification in this belief stems from the fact that Coinbase has been around since 2012 and Armstrong has led the company through several crypto winters. While this one may be more challenging, Coinbase has been here before and proves that it is preparing for better days ahead.