Analysts expressed alarm that 96% of the trading platform’s revenue came from transaction fees in the first quarter of 2021.
Coinbase CEO Brian Armstrong has sought to quell concerns that the exchange is too reliant on transaction fees for profitability.
Recent financial results showed that 96% of the trading platform’s revenue came from transaction fees. Given how the crypto markets can be incredibly cyclical, some analysts have gone on to warn that a rumored $100 billion valuation is far too high — especially if exchanges end up embarking on a “race to the bottom” where fees are slashed to win round customers.
But speaking to CNBC, Armstrong said that he hasn’t seen any evidence of market compression yet — and doesn’t expect to in the short to medium term. He added:
“Longer term, yes, I do think there could be fee compression just like in every other asset class out there. What you’ll see in our financials is that we’ve started to invest in different revenue streams that are starting to provide these green shoots of revenue — things like Coinbase Earn, the Coinbase debit card, staking revenue.”
Armstrong added that Coinbase has sought to monetize a number of its other services — and demand from institutional customers has also provided new sources of income for the brand.
“These are providing more steady, predictable streams of revenue and my guess is that, in five or 10 years, you’ll see that maybe even 50% or more of our revenue.”
What This Means
Armstrong’s remarks seem to be an acknowledgement that reliance on transaction fees for revenue could end up being problematic in a bear market — and it seems like the CEO has no intention of sitting still. Ensuring that Coinbase’s eggs aren’t all in one basket could help make the stock a more compelling proposition for investors in the future.
What remains to be seen is whether or not Coinbase’s stock price will end up being closely tied to Bitcoin’s value — meaning that the shares will rise and fall in line with the world’s biggest cryptocurrency. This could end up making it exceedingly difficult to perform fundamental and technical analysis on the stock, because its valuation will be clouded by an external factor.