Coinbase Reports First Profit After Two Years Amid Crypto Interest Surge

Coinbase Global has reported its first quarterly profit since 2021, pushing its shares up by nearly 13% after hours. The crypto exchange saw significant trading volumes, owing largely to the renewed interest in crypto. This resurgence is primarily attributable to the recent approval of the first bitcoin spot exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC).

The SEC's approval came in January, but anticipation of a positive decision had already boosted bitcoin's price by 57% in the final three months of 2023. This wave of enthusiasm in turn generated a 64% increase in Coinbase's transaction revenue, resulting in $529.3 million in the fourth quarter. Michael Elliott from CFRA Research pointed out that the results had exceeded both their forecasts and the Wall Street consensus.

Coinbase expects its subscription and services unit - which includes all businesses outside of trading - to perform strongly in the first quarter. It's projected that the revenue from this unit will fall within the range of $410 million and $480 million, surpassing the LSEG estimate of $356.22 million. In the fourth quarter, revenue from this unit rose nearly 33% at $375.4 million - largely thanks to an uptick in stablecoin revenue.

Stablecoin revenue is the interest that Coinbase earns from its partnership with fintech firm Circle, which issues the USD Coin (USDC) stablecoin and co-governs it with Coinbase. The interest on reserves that back the USDC comprise a significant part of revenue for Coinbase, and interest rate hikes by the Federal Reserve have allowed for even higher income.

Overall, Coinbase reported a profit of $273.4 million for the last quarter of 2023, an enormous turn-around from the loss of $557 million the year before. Analysts had expected a loss of 1 cent per share, according to LSEG data, therefore, Coinbase’s profit performance vastly outperformed expectations.

There are lingering concerns that the bitcoin spot ETFs might lead to investors seeking crypto exposure away from the Coinbase platform. However, the company remains unperturbed. Alesia Haas, CFO of Coinbase, stated, "ETFs have just been net positive for the industry and additive to Coinbase.” The success of ETFs indicates the increasingly mainstream acceptance of cryptos, which is beneficial for the entire industry and helps to strengthen Coinbase's position.

In conclusion, Coinbase Global has begun to see the benefits of the renewed interest in crypto, posting its first quarterly profit in two years. The decision by the SEC to approve bitcoin spot ETFs has been a huge contributor to these positive results and the increased transaction revenue. Beyond trading, Coinbase is also forecast to see significant growth in its subscription and services unit, showing the overall strength of the firm amid the resurgence of the crypto market.