Each disruptive technology follows a similar trajectory that is often described using gartner hype cycle. The “peak of heightened expectations” represents extreme hype while the “trough of disillusionment” represents utter disappointment. However, in the world of cryptocurrency, these moods are business as usual. No one wants to buy Bitcoin because it is down 35% from peak highs. Everyone knows that you only buy when it’s at an all-time high, and then immediately question your decision whenever the price drops even slightly.
Jokes aside, cryptocurrency is still a perfect mix of scams, failed projects, thefts, and of course lots of ransomware. On top of all this, growing institutional acceptance tells us that the crypto movement is here to stay, and various practical use cases like stable coins are seeing real momentum. The desire to be exposed to this topic is understandable and Coinbase $coin Seems like a sensible way to achieve this.
Retail exposure on Coinbase
It’s hard to see how Joe Retail still has money after continuously spending money on Robinhood $HOOD Money Trap Two Magazines – Options Trading, Crypto, Prediction Markets, Meme Stocks, All Roads Leading to Poverty. This is why we view volatile retail trading activities with great suspicion and prefer other pick-and-shovel revenue streams. Coinbase relies on retail trading for approximately half of total revenue, a proportion we would like to see decline over time.
We talked earlier about how institutional and retail trading volumes are highly correlated, so does this make institutional revenues less valuable? No, because it represents institutional adoption which points to more widespread use. When institutions decide to start trading an asset, they expect it to be consistent over time as opposed to the 50 percent failure rate for crypto projects. No one trades bored app ICOs anymore because lemmings are bored and have moved on to brighter and shinier things. Some of you may ask what is Bored App ICO? Absolutely.
In its latest earnings release Coinbase talks about, “We have diversified our revenue streams so that it is no longer just business specific. We now have 12 products that generate over $100 million in annual revenue.” They realize how important it is to depend only on the fickle whims of Joe Retail. Perhaps one of their most exciting emerging revenue streams will be stablecoins, a crypto use case that has been lauded by institutional investors as a “…clearest evidence“Cryptocurrencies are now moving from speculation to use which is complicated because the technology is actually useful.
A Quick Introduction to Stablecoins
In the context of today’s discussion, a stablecoin is simply a token that represents one US dollar. A company offering a stablecoin is required to hold one dollar for each stablecoin supplied otherwise the whole thing is ruined. Those dollars can then generate interest so that the stablecoin issuer can print money simply by collecting the interest. Also, the value of a stablecoin is never more than $1, but its value can go down if it is not being backed by the dollar.
The world’s largest stablecoin is USDT with a market share of around 60%. It is offered by a company called Tether which has not yet been audited before. It almost hurts to type that sentence. The entire cryptocurrency industry ignores the incredible fact that this could be solved with almost no effort on Tether’s part. If Tether ever bursts, the stablecoin thesis would certainly suffer a blow, while the second largest stablecoin could decline.
a company called circle $CRCL They have about 25% market share with USDC stablecoins now also directly accounting for all of Coinbase’s stablecoin revenue, which grew to 16% of total revenue last year.
Circle and Coinbase
The Circle has an interesting past that is worth revisiting. We first covered them about five years ago when they decided to go public using the SPAC method at a proposed valuation of $5 billion. This resolved a simple valuation ratio of around 78 that came with complex revenue arrangements and heavy customer concentration risk. We decided to pass, and then several years ago Circle tried to go public again and succeeded with an IPO that raised a billion dollars and valued the company at about $8 billion. Today Circle has a valuation of $32 billion and annual revenues of approximately three billion dollars, giving them a modest valuation ratio of approximately eleven (Almost double our catalog average).
If this business model is considered printing money, then why has their gross margin been less than 40% over the last two years? Compare this to Coinbase which has managed a consistent gross margin of 85% over the past several years. There is also a deep underlying relationship between the two companies where Coinbase holds 100% of the interest generated by USDC on its platform and splits the interest from Coinbase’s platform to USDC 50/50. This is the importance of the chart below which shows how Coinbase is growing revenue in both areas.
The relationship works well for both parties. Circle receives massive distribution and credibility through Coinbase, while earning high-margin revenue from USDC without Coinbase bearing issuance/reserve management responsibilities. Due to this important connection in the crypto community stablecoin revenues now account for approximately 48% of Coinbase’s “Subscriptions and Services” segment, although one has to wonder how long this strong growth can continue.
Bloomberg analysts believe there is potential 2X to 7X boost Much of the stablecoin revenue is coming from ongoing legislation related to the Genius Act, which Coinbase has been heavily involved in driving. Should this come to fruition on the midpoint estimate, it would generate approximately $6 billion in stablecoin revenues, or about 85% of total 2025 revenues. This is especially compelling because it means greater predictability in Coinbase’s revenue streams. Meanwhile, Coinbase isn’t the only company trying to capitalize on the growing legitimacy of blockchain technology.
Competition
Coinbase appears to be the only action in town at the moment, although this is misleading. They are the largest publicly traded exchange which is likely to change soon. Kraken, one of the largest – if not the largest – crypto exchanges has confidentially filed to go public. When the S-1 becomes available we will be curious to see how heavily they rely on transaction revenues and compare them to the current exposure we have. Since stablecoins are such an attractive thesis, Coinbase offers it as something unique.
Another company offering exposure to retail crypto trading is Robinhood $HOOD, although their exposure is less at just over 20% of total revenue last year. The crypto trading revenue streams of both companies are highly correlated at approximately 83% over the past several years.
Looking at the largest crypto exchanges, many still remain private so we don’t know what leadership really looks like. Coinbase appears to emphasize the total trading volume they support shows strong growth and is said to be 6.4% of the total crypto volume. Additionally, they talk about “more crypto assets than any other exchange,” with about 12% of all crypto in the world residing on Coinbase.
We’d like to see more metrics that show Coinbase is leading the industry as the go-to platform for any crypto. The company’s charismatic CEO, Brian Armstrong, is always in the news cycle for some reason, though not always in the way we’d like.
recent results
In putting this piece together we were looking for an investor deck with key metrics – what we call an “earnings presentation.” Coinbase has now replaced some of the tweets with links to a video of Brian Armstrong talking for several minutes, as well as a brief tweet and some slide images. We would much prefer a deck that included key metrics and commentary like every other publicly traded company, especially for year-end results.
Nonetheless, we analyzed the company’s 2025 year-end results as well as its latest earnings release. Coinbase tried to shine a positive light on their recent results by highlighting how “resilient” they are; However, the reality is that the company suffered losses for the second consecutive quarter due to falling crypto prices. Why was this “flexibility” not shown in the last line? Their $394 million quarterly loss is especially painful when you compare it to their positive $66 million profit in Q1-2025. While Coinbase does not provide annual guidance, quarterly revenue of $1.41 billion was down nearly 28% year-over-year, pointing to cyclicality and dependence on crypto prices, particularly Bitcoin.
In the earnings release, the company highlighted its anticipated market offerings and described it as one of its fastest-growing products to date. Although this provides an additional $100 million annual revenue stream for the company, it is based on more retail speculation that we would not like to see. They also highlighted the fact that their derivatives market (A way to hedge risk or speculate on crypto price movements) saw a 169% increase in trading volume year-on-year. So, more degradation.
The good thing is that Coinbase’s proprietary blockchain processes about two-thirds of the global “onchain” (decentralization) Stablecoin transaction volume, which points to increased stablecoin adoption and perhaps greater stability should revenues continue in the future. Ideally institutional trading revenue and stablecoin revenue make up the bulk of Coinbase’s total sales, while the drawdown is just a small bonus.
conclusion
Overall Coinbase remains an attractive way for legitimate cryptocurrency projects to grow as they see that transaction revenues cannot be relied upon. It’s also a race to the bottom, which is why Coinbase is pushing its membership offerings that provide more predictability. While prediction markets and derivatives seem like a step in the wrong direction, growing stablecoin revenues should more than offset the additional speculation. We will continue to watch for a reduction in reliance on retail trading volume over time.
