So here’s the $100 Bn question for Coinbase...If digital currency ETFs are inevitable, consumers will buy BTC in their brokerage accounts. Convenience wins. Doesn’t that kill @coinbase core transaction revenue stream?
A thread...
A thread...
Coinbase is heavily dependent on transaction revenue (96% of total). And we should expect transaction fees to compress from 150 bps to 5 to 10 bps (the ‘rate’ for esoteric capital market ETFs)
Can CoinBase continue to male money via altcoin trading, staking, inst’l custody? Yes. But none of those are meaningful revenue streams...and I would not expect that to change. Note BTC / ETH trades comprise 56% of Coinbase tx revenue in 2020...
Reminder that eTrade sold for about $13Bn... TD Ameritrade sold to Schwab for $22 Bn... @RobinhoodApp secondaries are $20 to $40 Bn... And yet all these firms can offer spot access to crypto the day ETFs are launched...
Can CoinBase make money via credit cards. Yes...but how big can it get? Capital One, card issuing leader, is worth $58 Bn. 50 competing crypto rewards cards are at various points of launching...
Can Coinbase launch its own ETF? Yes. So you can charge 50 bps (in the initial years). But then you playing a market share game with players like Van Eck, Fidelity, and BlackRock that have established distribution.
Are there customers that will insist on owning the asset directly (‘not your keys, not your crypto’). Yes. But Coinbase is a centralized market. That market is already on metamask/Uniswap.
The biggest upside opportunity for crypto is in the ‘mainstreaming’ the asset to traditional institutions and mass market. Seems like ETFs would gobble up, at lower fees, the vast majority of that growth.
Robinhood, Square and Paypal (others to follow) are offering crypto access with brokerage or bank-like capabilities Coinbase has two choices:
1) Specialize further (bet the business on growth in altcoins need for ETH to tap Ethereum apps) or 2) Close product gaps with brokerage or crypto banks. I don’t see how either solves the problem of preserving high transaction fee revenue in a PFOF zero fee world.
TLDR; ETFs are bad for coinbase
Full disclosure: I admire Coinbase tremendously, and they have built an enormously successful business and team. What am I missing here?
An update: $COIN is having a monster Q1 - something like 4x of prior year. My take: Coinbase will continue to grow as crypto remains hot. BUT, when ETFs launch they are a cheese grater for $COIN transaction revenues.
Prediction: $COIN will use its public markets currency to make an all-stock offer for a major brokerage (Charles Schwab?). This will be reminiscent if an AOL / TimeWarner deal
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