An Update On Coinbase’s Q1 2025 Earnings (Rating Upgrade)

Summary Coinbase’s S&P 500 inclusion is a massive liquidity event, driving momentum and attracting institutional investors, making it a unique, premium crypto investment. Regulatory progress like the STABLE Act and USDC growth, plus the Deribit acquisition, position Coinbase for long-term success as crypto adoption accelerates. Despite cybersecurity incidents, Coinbase’s proactive response and industry-leading transparency reinforce its resilience and investor confidence. Valuation remains challenging, but with rising custody assets and momentum, I see Coinbase reaching a $100B market cap and $400/share by 2027. Decoding Crypto with Coinbase When I first wrote about Coinbase ( COIN ) last October , I naively maintained a ‘hold’ position given the market premium. Coinbase is the only pure-play crypto stock, so naturally investors will buy Coinbase because no other alternative is available in the public markets. Of course, the greatest uncertainty in October 2024 was the U.S. Presidential Election. But since President Trump, we have witnessed crypto achieve even more demand from the capital markets. Looking backwards, I wrote about Coinbase when it achieved a near-time low. Now the Trump Administration has loosened its grip on crypto and deregulated so much of the market, making Coinbase a prime beneficiary. Today, I will cover some of the key updates for Coinbase investors, which includes advancing trading, scaling stablecoins, and security updates. Coinbase is unusual in that it cannot be compared to the traditional financial services firm. The company generates revenue from multiple sources, and its core asset class (crypto) is very volatile. So if you don’t invest in crypto or enjoy volatility, I recommend investing with caution. To begin, I recommend reading Coinbase’s shareholder letter . I’ve always enjoyed this snapshot they provide investors with every quarter. In fact, if you have a Coinbase Wallet you mint their recent earnings from their Investor Relations page. It’s a great way to connect and engage the investment community. Coinbase Q1 2025 Shareholder Letter The Future of Stablecoins and the STABLES Act We are beginning to see the early stages of crypto adoption throughout the financial services industry. For context, I recommend looking at this one week in crypto post by Jason Yanowitz, who is the co-founder of Blockworks . x.com The updates from Stripe to Coinbase to Bitcoin and Ethereum are massive. Individually these seem like small updates, but they are meaningful as a group. For example, not mentioned above is Coinbase’s long-term partnership with Circle which is driving the growth of the USDC ecosystem on-chain. If you don’t use stablecoins like USDC, then you probably aren’t familiar with Circle or even the STABLE Act. First, Circle is planning to IPO this year and its plans were only on pause because of volatility from the Trump tariffs in April. But now the STABLE Act, or the Stablecoin Transparency and Accountability for a Better Ledger Economy Act of 2025 (H.R. 2392), a new legislation introduced on April 2nd, 2025 is bullish for Circle and Coinbase. The bill aims to establish a regulatory framework for stablecoins, specifically dollar-denominated payment stablecoins. I’ve watched these stablecoin updates for months because I know how bullish this will be for the crypto ecosystem. For example, the U.S. established a Strategic Bitcoin Reserve and Digital Asset Stockpile, which was a landmark executive order in January. This will help the U.S. government monetize its crypto assets on behalf of the American taxpayer. This was also bullish for Coinbase because they make money from providing custody for crypto assets. During the 2024 election, I followed Stand With Crypto , a Coinbase-backed nonprofit advocacy group, for political updates. Their website gave me excellent updates on how politicians view the asset class in real-time. And on May 14th, 2025, Stand With Crypto held an event in Washington, D.C. to bring together over 60 crypto founders from 26 states. The group aimed to push for bipartisan regulatory frameworks to establish clear crypto rules. These positive developments have increased my confidence to go long Coinbase. The $2.9 Billion Acquisition of Deribit Coinbase’s acquisition of Deribit was the largest crypto acquisition in the past few months. A few months ago, Kraken’s acquisition of NinjaTrader was a big deal for the trading community because it made Kraken more mainstream. Before Kraken and Coinbase, it was Stripe’s acquisition of Bridge to enter the stablecoin industry in a big way. I won’t comment much about futures and derivatives because I don’t have enough experience regarding either when it comes to crypto. But I do know that the trading community loves these products, and they generate significant fees for exchanges. I suspect more trading volume to come from these acquisitions, and it will support the rumors of Kraken going public in 2026. The Success of Entering the S&P 500 index With all of that said, I am writing about Coinbase because it has joined the S&P 500 index, which is a massive deal for the company, industry and shareholders. Event-driven investing is an excellent way to make money if the events are pre-defined. Examples include mergers and acquisitions, product announcements or some corporate action. It’s not typical, but stocks entering or exiting an index like the S&P 500 is also a massive liquidity event. This is also the exact moment when smart money profits from fast money. You see, when a stock enters the S&P 500 Index, or a similar broad market index, there will be countless fund managers who will indirectly buy Coinbase stock because of their passive investment strategy. For context, the stock is already up 27% over the past week on the news. Google Finance This announcement will pivot Coinbase’s investor base from growth to momentum. Something similar happened when Palantir joined the S&P 500 index last September as well. I think the momentum for new investors to buy Coinbase stock will continue for the foreseeable future. Most retail investors won’t realize how significant this news is and try justifying not buying the stock because of its rich premium. Instead, investors can expect the premium to continue to be rich as Coinbase is a one-of-a-kind investment. That’s until more crypto companies go public and join the S&P 500 index in the future. Cybersecurity Concerns with Armstrong Like any exchange, Coinbase is under constant threat. Even with the transparency that comes with crypto, cybersecurity threats are always imminent. And last week, Coinbase discovered that cybercriminals bribed a small group of their overseas support agents to steal customer data. Watch this video of CEO Brian Armstrong on X, addressing customers and investors about the recent attacks on the Coinbase platform. You can read a detailed post on how Coinbase is handling this matter on their blog . x.com Coinbase is refusing to pay the $20 million ransom demanded by the criminals and will instead establish a $20 million reward fund for info of those responsible. The company is also reimbursing customers who were tricked into sending funds to the attackers. These cybersecurity attacks are learning lessons for the company and shareholders. Every financial institution is exposed to similar challenges. But fortunately for Coinbase, the S&P 500 announcement overcame these attacks and the stock has been up double-digits for the past few days. However, investors definitely need to be aware of these cyberattacks in the future. Coinbase is no exception to these and crypto is full of stories riddled with fraud, scam and theft. Do your best to understand how crypto works before buying Coinbase stock. The Valuation of Coinbase Financial technology stocks are a tough business to value for several reasons. First, Coinbase has become a momentum stock, and it will continue to trade at a premium for the foreseeable future. However, the main challenges with valuing Coinbase is that it has several different business models that most investors aren’t familiar with. For example, crypto itself is a tough asset to value. Today, Coinbase offers over 212 assets for custody and 172 assets for trading. But every week, millions of tokens are attempting to list on the Coinbase exchange. This makes it difficult for the average investor to understand the level of custody and trading exposure Coinbase has at any moment. In Coinbase’s recent earnings, you will find that total revenue was down 10%, but adjusted net income was up significantly to $527 million. Even though transaction revenue was down, Coinbase experienced gains from holding crypto assets such as Bitcoin. Coinbase also saw its average assets under custody grow to $212 billion, up $25 billion from the past quarter. ​ Also, USDC, the second-largest dollar-backed stablecoin, saw substantial growth in Q1 2025, with its market cap exceeding $60 billion . ​ Coinbase’s efforts to integrate USDC into its products have driven increased adoption among retail and institutional users. The average USDC held in Coinbase products grew to $12.3 billion, which is up 49% quarter over quarter. I expect this adoption to continue to rise as institutional USDC balances reach an all-time high. The cybersecurity concerns and entering the S&P 500 index have created a buying opportunity for investors today. By becoming a momentum stock, Coinbase has the clear sight to become a $100 billion market cap stock over the next two years. This will put the share price closer to $400 by the end of 2027. By joining the S&P 500 Index, investors and fund managers will find a reason to increase their crypto exposure. This will create a flywheel unlike any we’ve ever seen before in the tech industry. Even with a high revenue multiple, Coinbase will likely accrue significant custody assets in 2025, creating a sound fundamental position for investors to buy the stock today.

Source: Seeking Alpha