The Week in Charts: Issue #47
The charts and themes from the past week that tell an interesting story in crypto and investing…
1. Coin-Based
Coinbase's Q4 2023 results presented a nuanced picture of the company's progress. While the firm surpassed Wall Street expectations with a strong $954 million in total revenue, exceeding both Q3 figures and analyst estimates, the breakdown reveals a shift in revenue sources.
Following a consistent trend since Q4 2021, non-transaction revenue sources (e.g., subscription fees, staked asset yields, USDC interest) remained a significant contributor, exceeding 50% for the first three quarters of 2023. This highlights the success of Coinbase's product diversification efforts in reducing dependence on transaction fees. However, Q4 witnessed a notable change. Coinciding with the Q4 2023 uptick in crypto prices, transaction fees reclaimed the dominant position, exceeding 50% of revenue for the first time since 2022. This shift is further evidenced by a substantial 83% jump in transaction revenue compared to Q3, reaching $529 million, and the highest trading volume ($154 billion) since Q3 2022.
Despite the Q4 shift, Coinbase's overall financial performance reflected significant improvement. The firm achieved profitability for the first time since 2021, with a positive net income of $95 million and a remarkable turnaround from the negative $371 million adjusted EBITDA in 2022. This improvement underscores the effectiveness of Coinbase's cost-reduction efforts. While the Q4 uptick in transaction fees suggests sensitivity to market fluctuations, Coinbase's continued diversification efforts offer a promising foundation for long-term growth. Going forward, the company will likely navigate a balance between capitalizing on market opportunities and maintaining a diversified revenue stream, mitigating dependence on transaction fees alone.
Beyond the financial performance, Coinbase's Q4 report sheds light on two key trends impacting the company. The report underscores a significant increase in institutional activity on the platform. Institutional trading volume skyrocketed by 37 million last quarter, reflecting a staggering 161% growth compared to the previous quarter. Notably, Coinbase has onboarded 33% of the 100 largest hedge funds by AUM, further solidifying its position in the institutional crypto space.
While income from Coinbase Prime (the institutional arm) currently accounts for 10% of the total net income in 2023, this figure is expected to climb steadily. This is bolstered by the fact that Coinbase acts as the custodian for eight out of the eleven spot BTC ETFs, managing a staggering 90% of the $36 billion in AUM within these ETFs. Despite the surge in institutional adoption, the report also highlights an uptick in retail trading volumes on Coinbase. While the specific figures are not directly compared in the report, the phrasing suggests that retail activity played a significant role in the company's recent earnings.
Coinbase appears to be eyeing opportunities in two key areas:
● Crypto Credit Recovery: Despite the industry's previous struggles, credit services are showing signs of revival. While Coinbase's current loan book of $400 million pales in comparison to Genesis' past peak of $10 billion, it presents a potential market share opportunity for Coinbase.
● International Expansion: Coinbase is making strides in international markets, with its international derivatives exchange generating $9.65 billion in trading volume last quarter. While this volume is dwarfed by giants like Binance (trading over $20 billion), the defunct exchange FTX has left a void that Coinbase is well-positioned to fill.
You can read the full report here.
2. Wen’ ETH ETF
Open interest (OI) for Bitcoin futures on the CME exchange has reached a new all-time high, approaching $7 billion. This signifies a significant increase in the number of outstanding contracts for Bitcoin futures, indicating growing institutional interest and potential for increased volatility in the Bitcoin market.
Across the Atlantic, Ethereum (ETH) futures on the CME exchange have achieved a significant milestone, reaching an open interest (OI) of $1 billion. This marks the first time in over two years that ETH futures have seen such a high level of open contracts, indicating a surge in institutional interest.
The recent spike in OI coincides with Franklin Templeton's application for a spot ETH ETF. This follows a similar trend observed when leading investment firms like BlackRock, Fidelity, Ark 21Shares, Grayscale, VanEck, Invesco, Galaxy, and Hashdex filed for their spot ETH ETFs.
As seen with the previous wave of spot BTC ETF applications, we can expect a gradual increase in ETH futures OI leading up to and potentially beyond the approval of a spot ETH ETF. This suggests growing anticipation and potential price volatility in the Ethereum market.
3. New Read
I have published 5 research pieces/articles on NODO since the last issue.
● One Name to Rule Them All: How Clusters is Bridging the Multi-Chain Divide
● GoDaddy & ENS: Gasless DNSSEC Makes Web3 Domains a Reality for Millions
● Bitcoin Mining Difficulty Hits 81.73 Trillion
● MiCAR: Game Changer for European Crypto
● Turing Complete Bitcoin: BitVM Explained
And that's it for this week.
Have a great weekend everyone.
- Passie
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