For months, Coinbase executives have stated that they want to diversify so that they can earn money regardless of what happens in crypto trading. However, for the time being, the organization is heavily reliant on traders, notably those dealing in Bitcoin, the largest cryptocurrency token.
That’s one takeaway from a research released last week by cryptocurrency analytics source Coin Metrics. Despite raising the number of currency pairings available for trading on the platform from a little more than 100 in 2021 to more than 600 currently, Bitcoin and Ether, the second-largest token, have consistently accounted for over half of all activity.
“This shows that simply adding new assets isn’t a guaranteed way of generating trading fee revenue,” the Coin Metrics report said.
Coinbase (COIN) has also established non-trading revenue streams, such as a program that enables customers to convert their tokens for yield. As rates have climbed, it has made a rising amount of money from the reserves maintained to support its stablecoin, known as USDC.
However, the company’s fate remains inextricably linked to trade activity. According to the research, Coinbase’s stock price ($COIN) has closely tracked spot volume.
A request for comment from Coinbase was not returned. Executives have stated on earnings calls that they are attempting to diversify the company’s revenue away from trading and that they anticipate the company being a key mechanism for consumers to connect with all areas of the crypto ecosystem, rather than simply an exchange.
Coinbase’s price has risen 101% this year to $70.96, although it is still far behind its top of more than $340 in 2021. Similarly, Bitcoin has increased by 60% to $26,500, although it is still far from the $64,000 it traded at a few years ago.
For the time being, there are few signals that crypto trade activity is about to pick up. Daily volume on exchanges is almost half of what it was a year ago and less than a sixth of what it was during the 2021 boom.
Some cryptocurrency investors see the possible introduction of a spot Bitcoin exchange-traded fund as a trigger. Last month, a judge ruled that the Securities and Exchange Commission erred when it dismissed Grayscale Investments’ petition to convert the Grayscale Bitcoin Trust (GBTC) into an ETF, possibly clearing the way for similar ETFs to begin as early as October.
Even yet, Coinbase’s debut might be a double-edged sword. By making it simpler and perhaps cheaper for investors to acquire and own Bitcoin, such an ETF may boost the token’s price while cannibalizing part of Coinbase’s user base. Meanwhile, the SEC has filed its own complaint against the firm, saying that it acts as an unregistered securities exchange, which the company disputes and is defending.The Coinbase executives are certain that they will win in court and that crypto traders will rebound as they did in previous cycles. For Coinbase investors, the stakes are huge.