What Coinbase is building during the crypto winter

Shares of shares in cryptocurrency Coinbase Global (COIN 4.92%) has fallen over 85% from the top at the end of 2021 as the crypto market has imploded. Trading is down, prices are down and there is concern that margins will be under pressure throughout the year.

As terrible as operating conditions are today, Coinbase continues to build for the future. And if it can carry out plans to become more than just a stock exchange, this could be one of the biggest winners in the future for crypto and Web3.

The exchange problem

Coinbase has earned its money by being a popular cryptocurrency exchange, especially in the United States. But there are other exchanges with lower fees, and there will of course be price pressure for Coinbase to lower transaction costs for all users. Combine that with the decline in transaction volume overall, and you have a recipe for declining revenues and margins in 2022.

In the first quarter of 2022, retail volume fell from $ 177 billion to $ 74 billion sequentially. A large majority of the revenue is generated from retailers, so this was the biggest reason for the decline in sales and earnings.

There is no easy solution to the exchange problem. Margins will continue to be tight, and retailers may not return anytime soon. So Coinbase has to look elsewhere for revenue.

Business is where the money is

Coinbase may be known to be a popular exchange for traders, but the future of the business may be business services. Subscription and service revenues increased by 169% in the first quarter of 2022 compared to a year ago, while transaction revenues fell by 34%.

There are a number of options such as betting services, which charge 25% commission to help users bet cryptocurrencies. Deposit fees were also $ 31.7 million, and I think that may grow as the company offers security products to users. Coinbase wants to combine its app and wallet into an easier-to-use platform, which can make onboarding users easier.

COIN revenue data (quarterly) by YCharts.

Cloud services can be a big part of the company’s future, as well as developers looking to build faster in Web3. There is no point in building wallet integrations, trading tools or trading opportunities when they are available through Coinbase Cloud. This can be a shadow giant for Web3 companies.

For example, Coinbase is one of the providers of Shopify’s crypto payment platform, and the same tools are available to everyone. If you think that trading is going to be disrupted by “cryptocurrencies” – or that cryptocurrency is the way money is transferred from a customer to a merchant – instead of credit or debit cards, Coinbase can be a big player.

Crypto and NFT will one day be invisible

If I were to summarize the case for Coinbase in the long run, it is that no companies could make cryptocurrencies and NFTs invisibly better than Coinbase. As someone told me at the world’s largest non-fungible token conference NFT.NYC, “this should be a non-event for most people.”

What does that mean? This means that users do not have to worry about remembering security phrases that could compromise their accounts or wallet integrations or sign creepy transactions in Web3. They should be able to feel comfortable using Web3 tools, and the technical details should fall into the background.

I think this is what we see with Coinbase integrating several of the app and wallet products together, introducing an NFT marketplace and having “Pay with Coinbase” available to sellers. When concert tickets are moved to the blockchain, it will be a non-event because the tickets simply go to your Coinbase app. Or when a coffee shop sends you a loyalty NFT, it can sit in the background of your Coinbase app, invisible to you because it lives on the blockchain, but can be hidden from view.

Focus on the next billion users

Coinbase builds the tools to take the next billion people to crypto, NFT and Web3 wider. That is what the company is doing in this bear market, and if it succeeds, the company can come out of this stronger than ever.