The excitement of the first significant cryptocurrency participant to go public on April 14 is going on in the market. Wall Street analysts and Bitcoin-loving investors predict that Coinbase might make its debut at a valuation of $100 billion.
Coinbase achieved strong profitability last year, with revenue more than tripled from $483 million to $1.14 billion. Operating profit increased from a deficit of $45 million to $409 million. Coinbase derives 87% of these revenues from the transactions of Bitcoin, Ethereum, and 50 other tokens by retail/institutional customers.
However, what aroused the enthusiasm of Coinbase was its excellent results for the March quarter released on April 6. Its revenue in the first quarter soared 11 times, reaching 1.8 billion U.S. dollars, a 58% increase over the full-year revenue of 2020, and its operating income rose to more than 1 billion U.S. dollars. , Doubled from last year. Its operating profit margin is approximately 55%. It far exceeds the trading capacity that Wall Street Bank acquired in its iconic transactions in 2020. Coinbase generates 0.46% of revenue for every dollar traded in cryptocurrency or $300 for every bitcoin bought and sold for customers. It is impossible to maintain such a super-rich, almost never-seen trading profit margin. It highlights how the potential valuation of Coinbase will be very different from the actual outlook.
How will the platform charge the customers?
Coinbase detailed in its S-1 that it charges customers a fixed fee, which is reportedly about 0.5% of the dollar value of Bitcoin or Ethereum transactions. Depending on the volume of transactions, the costs can be higher or lower. The more businesses a customer trades, the lower the percentage-or of the region where the customer operates. It also collects a smaller amount from the difference between the “ask price” and the “bid price.” The average cost of Q1 is 0.46%.
Let’s compare the average fee of 0.46% to the figures of the two largest stock exchange owners in the U.S., the Intercontinental Exchange, and Nasdaq.
In 2020, ICE and Nasdaq will earn an average of 0.01% per dollar of securities trading. Therefore, Coinbase’s profits are about 50 times that of those long-standing large markets. It created three-quarters of Nasdaq’s trading revenue, at US$1.5 billion and US$2 billion, accounting for 2% of the transaction volume.
How can Coinbase’s market value reach $100 billion?
Analysts predict that the cost of trading cryptocurrencies will follow a downward trend and may even drop to zero. Coinbase’s share of each transaction is enormous; its profits are huge. Competitors can slash fees and still make substantial profits. Competitors such as Gemini, Bitstamp, Kraken, and Binance may reduce or charge zero transaction fees to gain market share. It will trigger a “bottom line race” like the market share battle that provoked a sharp drop in stock commissions in 2019 and then effectively eliminated it. Analysts also expect that traditional brokerage companies will soon provide cryptocurrency transactions, further putting pressure on Coinbase’s generous fees.
For Coinbase’s market value to reach 100 billion U.S. dollars by 2027, its revenue needs to grow by 50% every year to 21.3 billion U.S. dollars.
Coinbase has a market value of more than $20 billion. It will exceed the total revenue of ICE and Nasdaq by 50% in 2020. In short, to reach the equivalent of $100 billion in market capitalization, Coinbase needs to become the world’s largest exchange. If they buy shares in stocks issued on and after April 14, this is the investor’s bet.
COMMENTS