Where Will Coinbase Be in a Year?

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Just a year ago, Coinbase Global (NASDAQ: COIN) was trading around $75 per share. Fast-forward to today, and it has seen a major surge, climbing to roughly $210.

For those who joined me in investing in Coinbase over the last two years, you're already enjoying significant gains. But there's reason to believe that Coinbase might climb even higher over the next year, as it positions itself to capitalize on both emerging revenue streams and a potential bull market in the cryptocurrency space. Let's explore why.

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Diversifying revenue streams beyond transaction fees

If you've been following my coverage (or really, any analysis of Coinbase), you'll know that the company has made substantial strides in diversifying its revenue model over the past few years, a major factor behind its impressive stock performance.

Traditionally, Coinbase generated the bulk of its income through transaction fees, a model highly reliant on trading volume and vulnerable to market swings. Recognizing the need for stability, Coinbase began to build additional revenue sources, notably stablecoin revenue, which is now its second-most lucrative segment.

Coinbase's stablecoin business has thrived over the past two years, benefiting from its partnership with Circle, the issuer of USD Coin. With higher interest rates, Coinbase has leveraged funds from USDC buyers to invest in Treasury bills, which yield better returns during rate hikes.

This strategy paid off, with stablecoin revenue hitting a record $250 million in Q3 2024. However, this stream may take a hit as the Federal Reserve performs a rate-cutting cycle over the next year.

But this is where Coinbase's diversified revenue model will begin to shine. While a reduction in rates might dampen the income generated from stablecoins, it could simultaneously spark a new crypto bull market.

As rates fall, the cost of borrowing decreases, and liquidity in the economy tends to increase. Historically, a low-interest rate environment encourages risk appetite, which often leads to more capital flowing into riskier assets like cryptocurrencies (as seen in the bull market of 2021, when rates were at nearly 0%).

With the market projecting rate cuts to reach their peak by mid-2025, Coinbase's other revenue streams (such as transaction fees, blockchain rewards, and custodial services), which correlate closely with cryptocurrency prices and market activity, may begin to see significant growth in the next year.