Coinbase, the largest cryptocurrency exchange in the US, has reported its first quarterly profit in two years, signaling a potential turning point for the company. The news has been well-received by investors, with Coinbase’s stock surging more than 12% in after-hours trading. Although the stock has seen a 5% decline in 2024, it has experienced a remarkable 180% surge over the past year.
During the fourth quarter, Coinbase earned $273 million in profits, surpassing analyst expectations. This positive result marks the first quarterly earnings since the crypto boom of 2021. The company’s full-year net profit amounted to $95 million. Several factors contributed to Coinbase’s profitability, including an increase in traders on its platform and more clients for its subscription and services business. Total transaction revenue also saw a significant jump of 64% to $529 million.
One of the key drivers behind the influx of users to Coinbase’s platform was the market rally triggered by speculation that the Securities and Exchange Commission (SEC) might approve spot bitcoin exchange-traded funds (ETFs). These ETFs would allow investors to gain exposure to bitcoin without actually owning it, potentially broadening the appeal of digital assets to a wider audience. In January, the SEC granted approvals for these ETFs, with Coinbase serving as custodian for eight out of the 11 approved funds. This collaboration allows Coinbase to benefit from working with ETF issuers through its custody, prime trading, and trade settlement businesses.
Bitcoin, the world’s largest cryptocurrency, has experienced a surge in value since then, reaching above $52,000. However, it is still far from its all-time high of $68,789 set in 2021. The cryptocurrency market faced a crash in 2022 due to rising interest rates and the collapse of FTX, a major crypto exchange. However, it made a surprising comeback in 2023, with Bitcoin rising over 150% during that year.
Looking ahead to 2024, the bull case for Coinbase and the broader crypto industry is that many of the significant challenges have been addressed. The criminal conviction of FTX founder Sam Bankman-Fried and a guilty plea from Binance CEO Changpeng Zhao have helped restore confidence in the industry. However, Coinbase still faces some hurdles, including an ongoing legal battle with the SEC. The SEC sued Coinbase last June, alleging that it operated an unlicensed crypto securities exchange, broker, and clearing agency. This lawsuit poses a risk to the company’s future earnings. Nevertheless, Coinbase remains committed to defending itself in court, with CEO Brian Armstrong expressing his disagreements with the SEC.
Coinbase is also actively lobbying for more regulatory clarity in Washington. The company believes that the US will eventually find the right approach to regulate the crypto world, whether through new case law, legislation from Congress, or the support of the millions of Americans who have used cryptocurrencies. Armstrong stated during a call with analysts that “Crypto still needs to have its iPhone moment,” expressing his hope that Coinbase can contribute to making that happen.
While Coinbase’s profitability marks a significant milestone for the company, it is clear that challenges still lie ahead. However, with the crypto industry making strides in addressing its issues and Coinbase’s determination to navigate the regulatory landscape, the future looks promising for both the company and the wider cryptocurrency market.
David Hollerith is a senior reporter for Yahoo Finance, covering banking, crypto, and other areas in finance. For the latest news and updates on cryptocurrencies, including Ethereum and Bitcoin prices, crypto ETFs, and market implications, visit Yahoo Finance’s website. Stay informed with the latest financial and business news by visiting Yahoo Finance regularly.