GM DOers!
Coinbase, one of crypto’s most important companies, could literally DOUBLE their revenue within the next couple of years.
How?
By offering a killer new product called derivatives trading
By being a Bitcoin custodian for most Bitcoin ETF providers
By capitalizing on the come-back of retail investors into crypto
Today, we’ll go deeper into each point, but, why should you care? 🤔
By being the most important company in crypto, Coinbase’s success is a proxy of the success of the wider crypto market.
If Coinbase were to increase revenues by 100% in the coming years, that would attract a lot of eye-balls from Wall Street and further legitimize this industry.
So it’s worth chatting more about this…
Let’s explore how Coinbase can capitalize on the absolute largest sector in crypto, the derivatives market, to 2x their revenues by 2025.
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Crypto derivatives trading is a bit like placing a bet on what the future prices of cryptocurrencies will be, without actually holding the coins yourself.
Traders can amplify their potential profits by using leverage - this could be 2 times, 10 times, or even 50 times their original investment.
However, it's a high-stakes game; if their prediction misses the mark and the price moves in the opposite direction, they risk losing their entire investment.
Over the years, the crypto derivatives market has become absolutely massive.
Check this out…
This is the futures trading volume in crypto between February 2020 and October 2020 – the period just before we entered the 2021 bull market.
It’s showing daily volumes of around $20 billion, with the occasional spikes to $30 and $40 billion.
Now let’s zoom out to incorporate volumes during the 2021 bull market.
A massive increase. From 10s of billions in daily volumes, various exchanges started to collectively record 100s of billions in futures trading volumes every single day.
The derivatives market has become so big that over 73% of the monthly volume in crypto comes from derivatives trading, not spot trading (where you actually hold your coins).
Over the course of this upcoming bull cycle, the derivatives market is set to grow tremendously and the companies that can offer this service can benefit massively.
And Coinbase is looking to capitalize that… ⏬
P.S. We don’t condone the use of leverage in crypto, and recommend sticking to spot trading instead. However, from a business perspective, we can’t overlook the fact that the derivatives sector is by far the biggest one in crypto.
Coinbase is currently in the process of launching their derivatives platform worldwide.
They recently entered into plans to purchase an EU-based company holding a “MiFID II” license, which would take them a step closer to offering derivatives services in the EU.
Coinbase entered into an agreement to buy a company holding a Mifid II license, a step to start offering crypto derivatives in the EU.
Why is this a big deal and how will they make money?
As showcased in the previous section, the volume in the derivatives sector is huge! Those who offer derivatives trading services charge a fee on all trades that occur on their platforms.
So how much money could Coinbase make by launching this service?
Honestly, we have no idea, since we don’t know what kind of fees they will charge nor what kind of volumes they will settle.
However, a couple of researchers (Michael and Jay) went on the Bankless podcast a few months ago and made some educated guesses by looking at other players in this industry…
They chose Binance, who are charging a 0.05% fee from the volume settled on their platform.
In the past year, Binance settled anywhere from $8 billion to over $100 billion in trades every single day.
That means that by charging a 0.05% fee on all trades, Binance made $4 million per day on their worst days and $50 million per day on their best days.
We can use these numbers to estimate how much money Coinbase would make by offering the same service that Binance does.
During their podcast, Michael and Jay said the following:
Let's assume that Coinbase will charge a premium fee of 0.1% instead of Binance’s 0.05% (like they often do for all their products)...
Let's assume that Coinbase would reach to settle just 25% of Binance’s market share in the derivatives market…
If these 2 things would happen, then Coinbase would make around $3 billion per year. 🤯
In 2022, their revenues were $3.194 billion. Coinbase could double that by just offering this new product.
Again, remember that this isn't a certainty. We have no idea how much Coinbase will charge and what sort of market share they'll gain, as this product isn't launched yet.
But the potential is huge. And the best part? They’re not just relying on this new product for their revenues.
Here are 2 other revenue streams with big potential for Coinbase in 2024. 👇
First up… By charging platform fees.
Coinbase charges 0.5% to 4.5% – depending on the cryptocurrency, transaction size and payment method – on each swap happening on their platform.
During bull markets, they’re making a lot of money off of platform fees.
For example, in 2021 (bull market), 88% of Coinbase's ~$7.4 billion revenue came from platform fees.
On the flipside, in 2022 (bear market), Coinbase only made about $2.35 billion from platform fees.
The reasons?
In bear markets, most people stop trading
In bull markets. people trade continuously between tokens to chase pumps
In bull markets, retail investors FOMO back into crypto
Now, chances are very high that we’ll have a bull market in 2024, and Coinbase is set to make lots of money by charging their platform users.
Secondly… By being custodians for Spot Bitcoin ETF providers.
Coinbase will be the custodian for most Spot Bitcoin ETFs – which are set to be approved on Wednesday.
They will hold massive amounts of Bitcoin and charge a fee for this service.
While this revenue stream won’t be a big chunk of their overall revenue, it could still be a significant boost, depending on how much Bitcoin they will custody.
So far, we’ve only covered 3 out of Coinbase’s 7 revenue streams. Get caught up on Coinbase’s whole business model by reading our recent PRO Report.
Coinbase is one of my favorite companies and I believe that 2024 will be a big year for $COIN, as I’ve said in Our 2024 Predictions 🔮 newsletter.
The best part is that recently, $COIN has experienced some turbulence so the recent price decrease could signal a good entry into the stock.
I don’t expect this price to be at these levels for long, especially if we get a Spot Bitcoin ETF approval by Wednesday, something that Coinbase has a lot to benefit from.
Apart from keeping your eyes on $COIN, I think you should pay attention to the derivatives market in 2024.
Again, I don’t condone using leverage. However, I also can’t ignore that this is the largest sector in crypto.
So if you’re able to capitalize on the rise of the derivatives market in 2024, you could win big!
Familiarize yourself with this sector and learn more about GMX, one of the projects at the forefront of this industry, by reading our recent GMX onchain report.
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤️
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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
Kyle Reidhead
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