What's Up with Coinbase (COIN) and Bitcoin?

Coinbase is a crypto-currency bank that allows customers to buy and sell crypto-currencies like Bitcoin, Ethereum and Bitcash on its state of the art online platform. Crypto-currency has been growing at an astounding rate since it first debuted in 2009 and Coinbase provides a place for Bitcoin and other crypto-currency traders/investors to hold their coins. This is a valuable service as storing coins without Coinbase can be challenging for those that are not overly tech savvy like me.

The stock is an interesting play in the world of crypto because there doesn’t have to be a single winner in the Crypto market for COIN to make money. Coinbase reported in the second quarter financial statements that about 50% of revenue came from Bitcoin and Ethereum combined, the remaining 50% of revenue was from all other cryptocurrencies traded on the platform. The diversification amongst many types of crypto is attractive for an investment because theoretically a single crypto currency could fail but Coinbase would profit off of the survivors. This goes back to the old investing adage, don’t put all of your eggs in one basket. Currently Bitcoin’s market cap hovers at close to a trillion dollars which makes it by far the most valuable crypto-currency so if Bitcoin fails we may have a different problem. The diversification really only works for the lesser known coins. Coinbase diversification is nice for anyone wanting exposure to some of the lesser known Cryptos beyond Bitcoin that still have potential to grow and flourish.

Business has been booming at Coinbase in 2021. For the second quarter revenue was $2 billion, this demonstrates 11x growth compared to revenue of $178 MILLION in Q2 2020. Revenue for the six months ended June 30, 2021 was $3.6 billion compared to $357 million for the same period 2020. Growing revenue by 1,000% in a year is unheard of, this speaks to the proliferation of crypto-currency and the market warming up to the product.

The company generates revenue primarily in the retail customer segment by acting as an agent for customers that want access to crypto currency. A transaction fee is charged to buy or sell crypto, this fee makes up the majority of Coinbase revenue. Customers then are able to store their crypto free of charge in their Coinbase account. Storing Bitcoin and other cryptos can provide difficulty to some users so the ability to store in a centralized virtual bank like Coinbase is a great service. The reason storing crypto on your own can be difficult is that some technical knowledge is required to set up a Crypto key and wallet. Also coins would be best stored offline for security reasons which opens up the door for you to lose your crypto if your wife throws out your flash drive while doing the laundry. A man actually lost his password and access to $280 million in Bitcoin so these scenarios do happen. Having an online bank is the simplest way for noobs like me to engage in crypto which is why I believe the company has seen such impressive revenue growth.

Revenue is also generated from services provided to institutional clients. These revenues generally come in the form of cold storage fees in which Coinbase will hold crypto assets off line and charge a fee. Bitcoin takes some serious computer power to mine and manage so these services are imperative for companies that want to invest in crypto but don’t have the technical team or hardware on hand to facilitate such transactions. Why not use a third party like Coinbase? The company also offers consulting services that can help organizations investigate business solutions made possible by crypto. Services for institutions account for about $100 million in Q2 revenue. So retail customers like me, and not institutional clients, make up the lion’s share of the company’s $2 billion revenue. The growth in institutional clients is promising because institutions have a lot more money than individuals and as more big businesses invest in Bitcoin and other crypto assets the market will accelerate growth.

The success or failure of Coinbase will ultimately come down to the overall usage of cryptocurrency. If crypto continues to be used as a store of value and medium of exchange there is unlimited potential for Coinbase. Coinbase would likely become the de facto bank of crypto along with companies like Robinhood (HOOD), Gemini and Kraken. Considering that large names like Elon Musk, MicroStrategy, Paypal and Square Inc. have started investing in Crypto it is likely that traction will only continue to expand. I personally have invested about 5% of my net investments in Bitcoin and Coinbase, so I would say I am fairly confident this is just the beginning of the Bitcoin and Coinbase saga. I am excited to see the future of this company and will look at earnings reports for more clues along the way.

If you’re interested in learning more about Coinbase but don’t necessarily want to invest, you may want to check out their website. If you open an account in the link below you can even get free crypto for depositing $100 or more. If you use the link I also get free crypto which is better than a tip!

Free Crypto!

In addition to a one time account opening reward there are lessons on the Coinbase site that take only a couple minutes and provide ways to make up to $25 in Crypto! When you sign up simply look for a link that says “Earn free Crypto” and you can find the quizzes. I took all the quizzes available and have to say I learned a lot about this new trend called the Crypto economy. This has the potential to be as revolutionary as the internet when it was first discovered so I am simply excited to learn more and go along for the ride!