Predicting Coinbase's Position in the Following Year
Not too long ago, Coinbase Global (COIN dropping by 3.79%) was trading at around $75 per share. Fast-forward to now, and it's seen a significant rise, reaching approximately $210.
For those who joined me in buying Coinbase shares over the past two years, you've already experienced some substantial profits. But there's every reason to believe that Coinbase's price might even go higher over the next year, as it works to take advantage of new income streams and a potential boom in the cryptocurrency market. Let's dive into why.
Expanding revenue sources beyond trading fees
If you've been keeping up with my analysis (or pretty much any Coinbase analysis), you'll know that the company has made substantial progress diversifying its revenue model in recent years. A big factor behind Coinbase's impressive stock performance.
Historically, Coinbase made most of its money through trading fees, a revenue model heavily influenced by trading volume and vulnerable to market shifts. Recognizing the need for stability, Coinbase started working on new revenue streams, with its stablecoin business being a major success.
Coinbase's stablecoin business has flourished in the past two years, thanks to its partnership with Circle, the issuer of USD Coin. With higher interest rates, Coinbase has been using funds from USDC buyers to invest in Treasury bills, scoring better returns during periods of interest rate hikes.
This approach paid off, with stablecoin revenue hitting $250 million in Q3 2024. But with the Federal Reserve planning on a round of rate cuts next year, this income stream might take a hit.
But that's when Coinbase's diversified revenue model will really shine. A drop in interest rates could mean less income from stablecoins, but it might also spark a new crypto boom.
As interest rates fall, borrowing costs decrease, and the money supply in the economy tends to increase. Historically, low-interest rate environments often encourage risk-taking, leading to more money flowing into riskier assets like cryptocurrencies (like what happened in the 2021 bull market, where rates were almost at 0%).
Projecting to mid-2025, interest rates could hit their lowest point. At this point, Coinbase's other revenue streams (transaction fees, blockchain rewards, and custodial services), which closely correspond with cryptocurrency prices and market activity, could see significant growth next year.
How high can Coinbase go?
There's one key indicator that can help us understand Coinbase's potential in 2025: trading volume. This metric can help us gauge the stage of the crypto cycle and is often used as a proxy for investor interest, which tends to follow market trends.
At the peak of the last bull market, Coinbase handled around $550 billion in trading volume from Q4 2021. However, with the crypto market still recovering, the volume is currently at about $226 billion. This suggests not only room for growth but also the potential to break previous records if another bull market crops up.
This possible market shift could have significant repercussions for Coinbase. During the last crypto boom, over 90% of Coinbase's revenue came from transaction fees. Now, transaction fees account for only 47% of its revenue, highlighting Coinbase's successful push into other revenue streams. This means that, as volume goes up, Coinbase will have multiple ways to monetize its platform, further amplifying its earning potential.
As the next crypto bull market picks up speed, Coinbase will benefit not only from increased transaction fees but also from other sources of revenue, such as blockchain rewards, custodial fees, and other subscriptions and services.
Though it's all speculation, some rough calculations show that if trading volume reaches or exceeds the $550 billion peak of the last bull market, Coinbase's diversified revenue streams could yield record earnings and profits. This would not only bring Coinbase back to its previous highs but could also allow it to break new records.
So, where might Coinbase be in a year? If a crypto boom indeed kicks off alongside increased liquidity from lower interest rates, Coinbase could experience a significant boost. With its diversification efforts paying off and volume set to rise, it wouldn't be uncommon to see Coinbase retesting its previous highs and even setting new ones.
In light of the potential crypto market boom due to lower interest rates, Coinbase's diversified revenue streams, such as transaction fees, stablecoin business, and custodial services, could see significant growth, potentially surpassing their previous records. As a result, Coinbase's share price might also increase, potentially reaching or exceeding its previous highs.
Recognizing the importance of trading volume in gauging investor interest and market trends, a potential crypto market boom could push Coinbase's trading volume towards or surpassing the $550 billion peak of the last bull market, further amplifying the company's earning potential from its diversified revenue streams in finance.
