Coinbase, the largest cryptocurrency exchange in the US, has posted 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 had experienced a 5% decline in 2024, it has seen a remarkable 180% increase over the past year.
During the fourth quarter, Coinbase earned $273 million in profits, surpassing analyst expectations. This positive result marked the first quarterly earnings since the fourth quarter of 2021 when the crypto market was booming. The strong performance in Q4 also contributed to a net profit of $95 million for the full year.
Several factors have contributed to Coinbase’s success. The company attracted more traders to its platform and gained more clients for its subscription and services business. Total transaction revenue saw a significant jump of 64% to $529 million. Additionally, Coinbase benefited from a $121 million non-cash release that had been set aside for taxes, as well as an $18 million gain from repurchasing debt.
One of the key drivers behind the increased user base on Coinbase’s platform was a 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 making digital assets more appealing to mainstream investors. In January, the SEC granted approvals for these ETFs, with Coinbase serving as custodian for eight out of the 11 approved ETFs. This collaboration with ETF issuers has further strengthened Coinbase’s position in the market.
Bitcoin, the world’s largest cryptocurrency, has experienced a surge in value since the approval of ETFs. It has surpassed $52,000, its highest point since 2021. However, it is still far from its all-time high of $68,789, which was achieved in 2021. The rise in bitcoin’s value can be attributed to factors such as low interest rates and fiscal stimulus, which led to excess savings among investors.
Despite the positive outlook for Coinbase and the crypto industry as a whole, there are still challenges ahead. Coinbase is currently engaged in a legal battle with the SEC, which sued the exchange last June for allegedly operating an unlicensed crypto securities exchange, broker, and clearing agency. This legal dispute poses a risk to the company’s future earnings. However, Coinbase has chosen to defend itself in court, and its CEO, Brian Armstrong, has been vocal about his disagreements with the SEC. The company is also actively lobbying for more regulatory clarity in the crypto industry.
In conclusion, Coinbase’s first quarterly profit in two years marks a significant milestone for the company and the broader cryptocurrency market. The surge in trading activity, increased user base, and collaboration with ETF issuers have contributed to Coinbase’s success. However, challenges remain, including the ongoing legal battle with the SEC. Despite these challenges, Coinbase remains confident in the future of cryptocurrencies and is actively working towards creating a more regulated and mainstream-friendly environment for digital assets.
