Whether you love it or hate it, Bitcoin (CRYPTO:BTC) has been on fire. From a low of $4,106 during the coronavirus market crash, Bitcoin has surged fourteen-fold to over $58,000. An increasing number of prominent investors view Bitcoin as a hedge against monetary inflation in the wake of COVID-19. Even Tesla and Square have hopped aboard the Bitcoin train.
Bitcoin’s rally has set the stage for crypto exchange Coinbase to go public at a nearly $100 billion valuation. This is incredible, considering Coinbase was valued at $8 billion in October 2018.
For Bitcoin holders out there, Coinbase’s listing is a big step toward mainstream crypto adoption. Its market debut will also shine a spotlight on one of today’s most divisive investment topics. Ahead of this much-anticipated event, here are three things you should know about Coinbase.
1. A pioneer in the crypto economy
Coinbase began in 2012 as a way for people and businesses to send and receive Bitcoin from anywhere in the world. Since then, it has evolved into a one-stop shop for finance in the crypto world.
Along with its popular trading platform, Coinbase provides “crypto-based products” for staking, spending, saving, and borrowing — all using crypto assets. In doing so, the company “powers the crypto economy” — a new, open financial system built on top of Bitcoin, Ethereum (CRYPTO:ETH) and the thousands of other crypto assets.
On Coinbase, users can buy and sell over 45 types of crypto assets, and also send these crypto assets to other users on Coinbase’s global platform. Using their crypto assets, customers can fund Coinbase Cards — debit cards that users can use to pay at any merchant that accepts Visa. They can also put certain crypto assets to work, earning interest by holding them in their Coinbase account.
When Coinbase first launched, Bitcoin was nowhere as well-known as it is now. But Coinbase’s bold bet on the Wild West of cryptocurrencies has paid off. According to its IPO prospectus, Coinbase today serves 43 million retail users, 7,000 institutions and 115,000 “ecosystem partners,” a category that includes merchants, developers, and asset issuers. These customers are spread across 100 countries, giving Coinbase a truly global reach.
2. How Coinbase makes money
Coinbase makes money mainly through transaction fees and its subscriptions and services business. In 2020, transactions generated 86% of total revenue, while subscriptions and services accounted for 4%.
Every time users buy, sell, or withdraw assets on Coinbase, they pay a transaction fee. These fees vary based on the price and quantity of crypto assets involved in that particular transaction. As a result, transaction revenue depends on the trading volume on Coinbase, as well as the volatility of cryptoasset prices. Take 2020, for example. Transaction revenue rose 137% year over year, driven by 142% growth in trading volume. While this represents rapid growth, investors should also expect revenue from this segment to fluctuate — and sometimes wildly — subject to the whims of the volatile crypto market.
Coinbase’s subscription and service business, on the other hand, provides a steadier stream of revenue. The company earns fees for crypto assets it holds under custody and generates income by validating crypto transactions. The company also earns license revenue from its data analytics tool, which law enforcement agencies and financial institutions use to monitor blockchain transactions. While this business generates just 4% of Coinbase’s total revenue, it’s growing fast at 126% year over year. Coinbase will need to expand this business to get a more stable source of profits.
3. Coinbase is just getting started
Between 2018 and 2020, assets on Coinbase’s platform jumped more than tenfold — rising from $7 billion to $90 billion. In 2020, as more investors piled into Bitcoin, Coinbase’s revenue more than doubled to…