In 2023, Cryptocurrency market capitalization It rose from about $800 billion at the beginning of the year to more than $1.6 trillion at the end of the year. After a terrible 2022, investors seem to be more optimistic about digital assets.
Coinbase International (currency 3.46%) Ride this wave of enthusiasm to new heights. the Cryptocurrency stocks It rose 391% in 2023, a gain that beat Nasdaq Composite IndexAlthough it is down 26% this year (as of January 22).
But is Coinbase a great crypto stock that investors should consider buying now? Let's take a closer look.
Dominant trading platform
Amidst all the chaos that has occurred in the cryptocurrency industry over the past couple of years, Coinbase has been a stalwart. This flexibility goes to the founder and CEO, Brian Armstrong, who from the beginning made working within the regulatory framework and with regulators a priority, unlike many other cryptocurrency companies.
This has led Coinbase to not only survive industry turmoil, but also become a leading trading platform. According to theblock.co, Coinbase's trading volume in December reached $70 billion. This placed it in fourth place globally.
Naturally, the widespread focus on providing a superior user experience has made Coinbase the best cryptocurrency brokerage and exchange operator among individuals and institutions. Recent approval of 11 spots Bitcoin Exchange-traded funds (ETFs) prove that. The vast majority of asset managers that have launched this product use Coinbase as their custodian (more on this below), indicating its position in the industry as a trusted partner.
Generate greater recurring revenue
Armstrong and his team have long recognized that in order to make Coinbase a viable business, operations must rely less on volatile trading volume and the fees this provides, and more on a stable, recurring revenue stream. That's why there's been a huge focus on enhancing Coinbase's subscription and service offerings. This would also make running the business easier, as executives would have a better view of the company's future revenue streams.
Within subscription and services, one of the ways Coinbase makes money is through custodial solutions. This is where approval of spot Bitcoin ETFs could be a major driver of sales in the future. And the potential for Ethereum Spot ETFs To beat the market adds more financial upside.
In the most recent quarter, sales from subscriptions and services rose 59% year over year to represent 52% of the company's total revenue. These are exactly the trends that management wants to see. This is something that contributors should be encouraged to do.
High risk, high reward
After the stock's tremendous performance in 2023, as well as a renewed sense of optimism surrounding the cryptocurrency industry, it's all too easy for investors to view Coinbase stock as a no-brainer investment. But I think it's best to temper expectations a little.
Coinbase should be viewed as a high-risk, high-reward stock. The risk comes from the fact that the cryptocurrency market is still in its relative infancy, and there is a lot of uncertainty about what things will look like five to ten years from now. If cryptocurrencies fail to gain mainstream adoption, with fewer real use cases than many hope, and a painful regulatory burden, I don't think Coinbase will do well at all. In fact, in this scenario, the company may eventually cease to exist.
On the other hand, investors who are optimistic about the future of the cryptocurrency industry may find no better way to gain solid exposure to the asset class. Coinbase can essentially be viewed as a bet on overall market growth. But again, it all comes down to your risk tolerance and conviction about cryptocurrencies.
Neil Patel And his clients You have positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.
