Last week, Coinbase reported Q3 earnings for fiscal year 2023. It was an action packed earnings release with a few important details that are worth highlighting:

• Top line revenue declined as expected
• Coinbase’s new BASE chain had roughly 1 million transacting wallets in the during the third quarter. This highlights the growth potential for Coinbase’s new LOB
• Primary drivers of revenue include Stable coin and Interest income from the USDC partnership, as expected.
• Transaction revenues have also declined, as expected. Within this segment, altcoin trading has made up the bulk of transaction revenue. As the crypto market recovers from the bear market woes of the last two years, this segment will likely experience some relief in the upcoming quarters.
• Coinbase is also betting that future BTC spot ETFs (and potentially more crypto asset ETFs in the future) will begin to grow the custodial fee revenue
• Coinbase has begun expanding its product offering, as well as its geographic footprint. Coinbase has made moves with the International exchange to target more global markets outside of the core domestic markets. Additionally, Coinbase is launching derivatives for US based users as well.
• The regulatory uncertainty that currently hampers Coinbase is beginning to clear, both domestically and internationally.

 

As Quinn’s tweet rightfully points out, we did not learn anything new about transaction revenues. In fact, much of the down turn here was largely expected. With respect to stablecoin revenue growth, Coinbase was a beneficiary, largely due to higher interest rates QoQ.

We saw both blockchain rewards and custodial fees decline during this period, while staked assets and amount of custodial assets increased. I expect that Coinbase continues to increase their custodial market share as we move into 2024.

The relative recent launch of Coinbase institutional lending programs has been successful as well. “At the end of Q3 they had $125.8M institutional loans outstanding, up from ZERO in Q2.” We think this will continue to be a promising story for Coinbase as we move into 2024.

Similar to Quinn, we also believe that the BASE story continues to be wildly misunderstood and undervalued by traditional wall street analysts. We believe that BASE likely provides the highest growth potential for Coinbase.

Last but not least, we agree with Quinn that the ETF will be a beneficial catalyst in both the short and longer term for Coinbase.

For those unaware, we covered this topic in great detail in our September Markets report, “Coinbase: From Sleeping Giant To Industry Leader.”

We believe that the most recent earnings report confirms our thesis and continues to prove that Coinbase is positioning itself uniquely at the intersection of Traditional Finance and Crypto markets at precisely the right time.

Disclosure: I am very looooong $COIN and Coinbase LEAPs