Coinbase Reaps Profits Amid Bitcoin ETF Wave for First Time in Two Years

In Q4, Coinbase raked in profits of $273 million, significantly exceeding analysts' predictions. It was the most favourable quarterly result since Q4 2021, during the previous cryptocurrency boom. Furthermore, impressive Q4 results uplifted Coinbase’s annual performance to a net profit totaling $95 million.

The increased number of traders on its platform and the growing client-base for its subscription and services business pushed Coinbase into profitability. Overall, total transaction revenue experienced a 64% growth, catapulting to $529 million. The quarterly profit was fueled further with a $121 million non-cash release set aside for taxes, coupled with an $18 million gain from debt repurchasing.

A sudden market rally spurred by expectations that the Securities and Exchange Commission (SEC) might permit spot bitcoin exchange-traded funds (ETFs) also helped Coinbase attract more people to its platform. These ETFs would help investors gain exposure to the largest cryptocurrency without actual ownership, thereby magnifying the mass appeal of digital assets.

Upon receiving approvals in early January, Coinbase became custodian for eight out of the 11 ETFs. It benefited through its custody, prime trading, and trade settlement businesses in collaboration with ETF issuers.

Bitcoin (BTC-USD) soared to over $52,000 following this, its highest mark since 2021, when it achieved an all-time best of $68,789 due to low interest rates and increased savings from fiscal stimulus. Despite market crashes in 2022 due to rising rates and the collapse of FTX– a giant crypto exchange, Bitcoin made a surprising comeback in 2023, growing over 150%.

Amid major setbacks following the conviction of FTX founder Sam Bankman-Fried and Binance CEO Changpeng Zhao, the crypto world appears to be recovering in 2024. However, Coinbase faces its own set of challenges. The SEC sued the company in June for allegedly operating an unlicensed crypto securities exchange, broker, and clearing agency, imperiling future profits.

Despite these ongoing legal battles, Coinbase continues to advocate for more transparency regarding crypto regulations in Washington. CEO Brian Armstrong remains hopeful of resolving these issues, whether it be through new case law, legislative action, or the active participation of the 52 million Americans using crypto.

As he stated during a recent analyst call, "Crypto still needs to have its iPhone moment, and we're hoping to make that happen."