Coinbase's revenue from Bitcoin transactions could fall sharply this year due to a loss of investor appeal.
Coinbase (COIN) stock was one of the most profitable investments in 2023, returning more than 390% to investors. Despite a general downturn in the crypto industry in the first half of 2023, the company posted excellent financial performance after a resurgence in crypto activity amid the rise of Bitcoin and major altcoins.
However, COIN stock lost 32% of its value in 2024. Meanwhile, Bitcoin rose 2.65% during the same period. Crypto analysts believe that the launch of spot Bitcoin ETFs could play against Coinbase, according to Yahoo!Finance.
The emergence of ETFs and their benefits for investors could lead to the loss of some of Coinbase's revenue. Experts attribute this to the fact that previously investors could access Bitcoins through regulated exchanges, but now they are available through ETFs and at much lower fees.
Most spot Bitcoin ETFs have set minimum fees, often below 0.4%, to attract investors. Coinbase, on the other hand, has fees ranging from 1.5% to 4%.
As a result, investors may prefer to access Bitcoin through ETFs, reducing Coinbase's Bitcoin transaction revenue. This part of the cryptocurrency exchange's business generates about 17% of Coinbase's total revenue.
However, the company could also benefit from the launch of Bitcoin exchange-traded funds (ETFs) and the fee income generated by the ETFs.
Given the current market situation, the cryptocurrency exchange will have to work hard enough to maintain its successful financial performance.
At the time of writing, COIN stock was trading at $117.30, down 9.22% in the last 24 hours.
It is also worth noting that in the long run, Coinbase can count on Bitcoin custody fee revenue for ETF issuers, as the exchange has become the Bitcoin custodian for 8 out of 11 ETFs launched. As a result, Coinbase will receive a 0.2% fee plus additional fees for custody going forward.
Since Coinbase charges a custody fee based on the total value of each account rather than the number of Bitcoins, the price of Bitcoins is one of the factors that determines the cost of custody. This will benefit the company in the long run. It is also possible that more issuers will be approved, in which case trading volumes will continue to decline in favor of ETPs, and Coinbase's competition for market share will intensify.
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