Coinbase has secured its position as the financial dark horse of 2023, leaving traditional tech peers in the dust with a staggering 400% surge in stock prices.
This remarkable ascent has outpaced even the formidable gain of 249% achieved by tech giant Nvidia.
The driving force behind Coinbase’s extraordinary rise is largely attributed to widespread optimism surrounding positive regulatory developments.
Speculation is rife that the US Securities and Exchange Commission (SEC) is poised to approve exchange-traded funds (ETFs) directly investing in bitcoin.
Coinbase stands to reap substantial benefits by serving as the custodian for bitcoins held by these ETF funds.
Enthusiasts of bitcoin anticipate that such ETFs will contribute to broadening the investor base, potentially fueling a surge in bitcoin prices.
In 2023 alone, bitcoin prices experienced a notable 160% increase, reaching above $45,000 this week for the first time since April 2022.
However, while investors flock to Coinbase and bitcoin prices reach new heights, the trading activity on the platform has maintained relative restraint.
The monthly transacting user count stood at a modest 6.7 million at the close of the third quarter, marking a decline from 8.5 million a year ago.
Also, trading volume witnessed a significant dip of over 50% during this period, and total transaction revenue saw a fifth less.
As anticipation builds for the upcoming fourth-quarter results, expected in February, any potential upswing may already be factored into Coinbase’s valuation.
Despite the company’s seven consecutive quarters of losses, it currently trades at a multiple of 16 times revenue, up from a mere 1.6 times a year ago.
In contrast, larger and more profitable exchange operators like Cboe and the London Stock Exchange are valued at 5 times and 6 times revenue, respectively.
To its credit, Coinbase has diversified its revenue streams, with half now originating from subscription and services, including custody services, interest-earning assets, and staking.
Nevertheless, the company’s fortunes remain closely entwined with the unpredictable fluctuations of bitcoin and the ever-changing regulatory landscape, factors beyond its immediate control.
Complicating matters further, a decision on regulatory approval for spot bitcoin ETFs may face delays, and Coinbase finds itself engaged in a legal tussle with the SEC, accused of operating an unregistered securities exchange.
The SEC’s reluctance to clarify the classification of digital assets as securities adds another layer of uncertainty.
After a surprising resurgence from a tumultuous 2022, Coinbase may encounter challenges in maintaining its elevated valuation throughout the coming year.
