Cryptocurrencies have been around for about ten years, and they've been really up and down. Sometimes the prices go way up, and other times they drop a lot. But lately, things have been going pretty well. The total value of all cryptocurrencies combined has gone up a lot, reaching over $2.3 trillion in 2024.
Coinbase, a big platform where people can trade cryptocurrencies, has benefited a lot from this. Its stock price has more than doubled in the past year, and it's gone up more than five times since the beginning of 2023.
Investors might be keeping an eye on how well Coinbase's stock is doing lately. However, there's something interesting about Coinbase that they might not be aware of: its second biggest business is doing really well at the moment. This might be a surprise because it's not getting a lot of attention. Let's take a closer look at what investors should know.
Why this stablecoin matters for Coinbase
Cryptocurrencies like Bitcoin can have unstable values, going up and down. But there's another kind called stablecoins, like USD Coin (USDC), which are meant to keep their value stable, usually pegged to the U.S. dollar.
Stablecoins, like Tether and USD Coin, work by taking in dollars from customers and issuing equivalent coins. This system is designed to ensure that the stablecoin company has enough reserves to pay back customers when they want to cash out, keeping the value stable.
Stablecoins make money by earning interest on the cash they hold. So, the more cash they have, the better. You can get an idea of how much cash a stablecoin has by looking at its market cap value. Tether has the largest market cap, over $100 billion.
USD Coin was co-created by Coinbase, and Coinbase earns revenue from it. In fact, it's a significant part of their business. In 2023, Coinbase made nearly $700 million in revenue from stablecoins, which was 24% of their total revenue and the second biggest income source.
Even though the market cap of USD Coin dropped by over 50% from its peak in July 2022, Coinbase's revenue from stablecoins grew by 183% in 2023, mainly because of higher interest rates.
Recently, there's been renewed interest in USD Coin, with its market cap going up about 36% since November 2023. This means there's more money in play, generating revenue for Coinbase. If this trend continues, it could have a positive impact on Coinbase in 2024.
What can investors expect from Coinbase?
There are reasons to feel optimistic about both Coinbase's stablecoin revenue, which is its second biggest income source, and its largest source, transaction fees.
Coinbase makes money when people trade cryptocurrencies on its platform. Transaction revenue was down overall in 2023, but it bounced back strongly in the last quarter, growing by 64% compared to the previous year and by 84% compared to the previous quarter.
Coinbase's management mentioned that transaction revenue growth was heading in the right direction when they reported their financial results. Since then, the cryptocurrency market has remained active, giving hope that Coinbase will continue to do well in this area.
However, it's important to remember that investing in cryptocurrencies can be risky. Some of Coinbase's rivals have already shut down, and there's still a lot of uncertainty around regulations in this industry. So, investors should be careful.
That being said, Coinbase is set to announce its financial results for the quarter next month. With transaction revenue on the rise and the value of USD Coin increasing steadily, it wouldn't be surprising if Coinbase reported strong financial results.