Coinbase: The Allure For Speculators In The Crypto Market

Summary Coinbase is evolving from a trading platform to a comprehensive crypto payments and financial services provider, with stablecoins at the core of its growth strategy. USDC stablecoin adoption is driving significant revenue growth and diversification, reducing Coinbase’s reliance on volatile transaction fees. The GENIUS Act offers regulatory clarity for stablecoins, removing a major risk and unlocking further growth potential for Coinbase’s stablecoin business. With strong Q1 2025 results, rising stablecoin volumes, and favorable regulatory developments, I rate Coinbase stock a buy for long-term investors. Coinbase Global (NASDAQ: COIN ) describes its business on its website as “T he most trusted place for people and businesses to buy, sell, and use crypto .” The company’s main business is a cryptocurrency exchange. However, management is shifting its business model from primarily a cryptocurrency exchange into a subscription and services business focused on Assets Under Management ((AUM)), Payments, and enabling developers to build applications and services on top of Coinbase’s infrastructure. If you believe cryptocurrencies are the future of the payment industry, you might want to consider an investment in Coinbase, as cryptocurrency adoption rapidly expands. The company is at the forefront of transforming cryptocurrency into a viable currency for transactions, a shift from the early years of cryptocurrency when people mainly viewed it as a speculative investment. Chief Executive Officer Brian Armstrong said on the first quarter 2025 earnings call , highlighting its payments business: Our emerging payments business drives volume on our exchange or by serving retail, pro, and institutional traders all in one platform, we get more liquidity and order flow on our exchange. We have retail customers who want to spend crypto. We also have businesses that want to accept crypto. That’s sparking economic activity. So our goal is to be the number one financial services platform in the world across each of the customer groups we serve with crypto rails eventually powering the majority of global GDP. A recent Coinbase blog post titled “The State of Crypto: The Future of Money Is Here” stated (emphasis added): 2025 has marked crypto’s turning point, driven by the surge of digital asset adoption, real-world tokenization, and growing institutional and small business engagement. At the center of it all, stablecoins have emerged as the dominant force powering on-chain utility and real-time, global payments . According to new research conducted for Coinbase by The Block Pro Research, organic stablecoin transfer volume has reached unprecedented levels with the two highest monthly volume transfers in history happening in the last 12 months. December 2024 set a monthly volume record of $719 billion, followed closely by April 2025’s $717.1 billion. Coinbase defines Stablecoin as “a type of cryptocurrency whose value is pegged to another asset, such as a fiat currency or gold, to maintain a stable price .” Bitcoin is a decentralized digital currency based on blockchain technology, and people and businesses use it for encrypted, peer-to-peer transactions without the need for a central bank. Unlike Bitcoin, Ethereum isn’t digital money. CME Group defines Ethereum on its website : Ethereum is an open-ended, decentralized, blockchain-based, public software platform that facilitates peer-to-peer contracts, known as Smart Contracts, as well as Decentralized Applications, known as DApps. Smart contracts allow users to exchange value without requiring an intermediary. Smart contracts are agreements with defined terms and protocols in place to enforce them. But unlike traditional contracts, written in human languages and enforced by courts of law, smart contracts are written in code that a computer can execute, which eliminates ambiguity. Although Coinbase’s trading platform grew its business on the back of the rise of Bitcoin and Ethereum, Stablecoins have become increasingly critical to its emerging AUM and payments business. Bitcoin and Ethereum have a severe deficiency when used in payment applications. Both cryptocurrencies can fluctuate wildly due to an imbalance in supply and demand, market sentiment, and speculation. Although speculators may find Bitcoin and Ethereum useful for potential price appreciation, consumers and businesses may find these cryptocurrencies suboptimal for making transactions or as a store of value due to their price instability. Since cryptocurrencies, such as Stablecoins, often have lower processing fees and faster settlement times than credit cards, debit cards, and cross-border bank transfers, cryptocurrency transactions are on the rise. Coinbase entered the Stablecoin market when it formed a partnership with Circle Internet Group ( CRCL ) to jointly establish the Centre Consortium in 2018, which governed the USD Coin ((USDC)) stablecoin. USDC is a regulated stablecoin that can be exchanged 1:1 for a U.S. dollar. Subsequently, the partners disbanded the Center Consortium in 2023, with Circle assuming complete control of USDC’s operations and governance and Coinbase taking an equity stake in Circle. Coinbase’s success is increasingly reliant on the success of USDC. CEO Armstrong said on the first quarter earnings call: We made great strides across our stretch goal to make USDC the number one dollar stablecoin as well. In fact, USDC hit a market cap all-time high of $60 billion in Q1 and the average USDC held in Coinbase products increased 49% quarter-over-quarter to $12 billion. And given our partnership with Circle, which is indefinitely renewable, increased USDC balances on our platform result in durable revenue for Coinbase. Base stablecoin balances reached $4 billion in Q1, up 12% quarter-over-quarter. This was also largely driven by USDC. Coinbase First Quarter 2025 Shareholder Letter The company’s first-quarter 2025 Stablecoin revenue grew 32% sequentially to $298 million. Coinbase generates revenue from USDC primarily through interest earned on the reserves backing the Stablecoin. It earns 100% of the interest on USDC held directly on Coinbase’s platform. Coinbase also receives 50% of the revenue generated from the interest income resulting from the broader distribution and usage of USDC as part of a revenue-sharing agreement with Circle. USDC and other stablecoins help Coinbase diversify away from generating revenue through transaction fees, creating a more stable income source and reducing the risk of investing in Coinbase. This article will discuss the GENIUS Act , or the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025, and how that legislation should benefit Coinbase. It will also review the first quarter 2025 earnings call, risks, valuation, and why the stock is a buy. The Genius Act is a tailwind for revenue growth On June 17, 2025, the U.S. Senate passed the Genius Act, which regulates private companies issuing digital dollars. The day after the Senate passed the bill, Coinbase’s stock rose by 16.32%, and Circle’s stock rose by 33.82%. One of the risks that held back Coinbase and other companies involved with issuing or holding Stablecoin was the lack of guidance about what was and wasn’t acceptable. Companies creating or using instruments like Stablecoins fear that some regulatory bodies may not be well-suited for regulating cryptocurrency used for payment purposes and may impose unclear rules that penalize cryptocurrency promoters. For instance, the Securities and Exchange Commission (SEC) accused Coinbase of operating as an unregistered securities exchange in 2023; however, fortunately for Coinbase, many of those charges have recently been dropped . The Genius Act now moves to the House of Representatives for consideration. If the House passes the bill and the President signs it into law, Coinbase will have clearer guidelines. According to the Senate bill, the payment of stablecoins will not fall under the SEC’s purview. Instead, non-bank stablecoin issuers with more than $10 billion in outstanding stablecoins would fall under the jurisdiction of the Office of the Comptroller of the Currency ((OCC)). Bank stablecoin issuers with more than $10 billion in outstanding stablecoins will be regulated by banking regulators such as the Federal Reserve and Federal Deposit Insurance Corporation (FDIC). Genius would allow certified state-level oversight under certain conditions for stablecoin issuers with less than $10 billion in stablecoins outstanding. With more straightforward regulatory guidelines and knowing a specific regulator overlooks the market, consumers and businesses may worry less about a stablecoin collapse, such as the TerraUSD ((UST)) debacle in May 2022, and begin trusting the currency for transactions. The more consumers and businesses trust cryptocurrencies such as USDC, the better Coinbase’s revenue-generating prospects are, as it can generate income directly from the USDC on its books and create new products with USDC as the underlying currency. Company Fundamentals Coinbase’s revenue broadly consists of transaction revenue and subscription and services revenue. If you listen to the company’s earnings calls, you may notice that management tends to highlight quarter-over-quarter (sequential) figures rather than year-over-year figures. Since the crypto market can change rapidly from a bull market (Crypto summer) to a bear market (Crypto Winter), sequential numbers are often more relevant for investors to determine the financial health of the company’s end markets. Transaction revenue is the more volatile of the two revenue segments, and subscription and service revenue is the source of more stable revenue. Management is actively trying to shift its revenue from transactions to subscriptions and services to lower the volatility of its revenue growth. Investors often reward companies with stable revenue growth with higher valuations. Coinbase increased its first-quarter 2025 percentage of revenue derived from subscriptions and services by 344 basis points (bps) year-over-year to 35.61%, which is the direction investors want to see this percentage heading in. Coinbase First Quarter 2025 Shareholder Letter The company generates the majority of its total revenue through consumer transaction revenue, which includes charging trading fees to individual retail users for buying, selling, and crypto-to-crypto conversions. Consumer transaction revenue decreased sequentially by 19% to $1.095 billion, primarily due to a 17% decline in consumer trading volume, which fell sequentially to $78 billion. Its first-quarter 2025 institutional trading volume decreased sequentially by 9% to $315 billion. Coinbase’s first-quarter 2025 institutional transaction revenue decreased by 30% sequentially to $98.9 million. Chief Financial Officer Alesia Haas said on the first quarter 2025 earnings call: There are two factors, which drove the discrepancy between the revenue decline and the volume decline. The first is the growth in our derivatives trading business. As we build this business, we are offering trading rebates and incentives to build liquidity and acquire customers. Our focus on growth is causing a decline in the transaction revenue that we get from derivatives trading as these are contra revenue and recorded in the institutional transaction revenue line item. Second, we saw a spot volume mix shift, which was more concentrated on market makers and liquidity providers, which tend to have lower fee rates. The above commentary means the average fee rate the company earns on trades declined due to Coinbase offering incentives such as trading rebates to attract users to its derivatives trading business (futures and options). The company is primarily looking for entities that can generate a significant volume, such as large traders and market makers. The company doesn’t expense these rebates and incentives separately. Instead, management directly deducts these expenses from the gross revenue generated by those derivative trades. For example, suppose Coinbase earns $100 in fees but gives back $20 in rebates; its reported “net” revenue for that trade is only $80. So, even if the volume of derivatives trading is growing, the net revenue from it may grow more slowly than the volume because Coinbase is intentionally sacrificing a portion of its potential revenue (via rebates) to aggressively gain market share. The “spot market” is where entities buy and sell cryptocurrencies directly. A “spot volume mix shift” refers to a larger proportion of the trading volume on the “spot market”, coming from market makers that exchanges like Coinbase typically offer lower fee rates. Coinbase actively offers lower fees on its spot market to market makers, ensuring liquidity on its exchange. However, delivering these lower fees to market makers results in lower revenue. Total transaction revenue decreased 19% sequentially to around $1.3 billion. Although revenue declined, the company increased its trading market share across both spot and derivatives trading. Management’s strategy is to attract more users and volume today, even at lower fee rates, to build a larger long-term user base. The company aims to produce a virtuous cycle where more traders (especially market makers) on the platform lead to more liquidity. A more liquid market attracts even more traders to the platform. The company’s first-quarter 2025 subscription and services revenue increased 9% to $698 million. Chief Financial Officer Alesia Haas attributed stablecoin revenue growth as a key driver of subscription and services revenue growth. She also said on the first quarter 2025 earnings call: Over the last 2 years, we have seen [MTUs] holding USDC double, and the average balance of USDC per holder has tripled. Coinbase One also continued to add new subscribers as we extended new benefits. The above commentary indicates that Monthly Transacting Users (MTUs) holding USDC are doubling, and the average balance of USDC per holder is tripling, suggesting an increase in USDC usage on the platform — a positive development. Coinbase One is a premium subscription service that offers members zero trading fees, boosted staking rewards, priority support, a 25% rebate on Coinbase Advanced spot fees in USDC, and other benefits. Increasing subscriptions to Coinbase One would help the company diversify its revenue sources, moving beyond transaction fees to include more subscription and service fees. The first quarter of 2025 shareholder letter stated the following about USDC: The average USDC held in Coinbase products increased 49% Q/Q to $12.3 billion driven by longstanding efforts to better integrate USDC across our product experience and our rewards program. Growth was partially offset by lower average interest rates which declined 7% Q/Q… Average off-platform USDC balances increased 39% Q/Q to $41.9 billion, which was driven by growth in USDC usage across on-chain dapps , and expanded distribution partnerships. We continue to be pleased with our long-term partnership with Circle, and the growth of the USDC ecosystem. By integrating USDC more deeply into our products and driving adoption, we’ve increased our monetization of ecosystem economics over time. We’re optimistic about expanding USDC’s reach further through continued innovation and product integration. Its first quarter of 2025 shareholder letter noted the following about the “other transaction revenue” category: Other transaction revenue was $68 million in Q1, flat Q/Q. Our efforts to drive more scale and lower costs are paying off as the number of transactions on Base increased 16% Q/Q, while average revenue per transaction decreased 21%. We believe that the sustained growth in transactions is a result of lower fees and growing utility. Coinbase’s net revenue declined 11% sequentially to $1.96 billion. Total revenue was $2.03 billion, missing analysts’ estimates by $43.95 million. Coinbase First Quarter 2025 Shareholder Letter Coinbase’s first-quarter 2025 transaction expenses decreased sequentially by approximately 4%. The first quarter 2025 shareholder letter stated, ” The Q/Q decrease was largely due to lower customer trading activity and lower blockchain reward fees related to lower average asset prices .” Its first quarter 2025 Technology and development expenses decreased 4% sequentially to $355 million. The company’s first quarter 2025 shareholder letter stated: The decrease was primarily driven by lower personnel-related expenses despite higher total headcount. This was largely due to the update in the timing of stock-based compensation expense recognition we noted in the Q3’24 shareholder letter, in addition to higher capitalization of internally developed technology. This decline was partially offset by an increase in variable software and web hosting-related spend. The company’s first-quarter 2025 general and administrative expenses increased 9% sequentially to $394 million. The first quarter shareholder letter stated, ” Growth was driven primarily by higher customer support and personnel-related costs .” Coinbase’s first-quarter 2025 sales and marketing (S&M) expenses increased 10% sequentially to $247 million. Its first quarter 2025 shareholder letter stated: [S&M] growth was largely driven by higher performance marketing spend to capitalize on strong market conditions early in Q1, and higher USDC rewards as we reached new all-time highs in balances in Coinbase products. As indicated in our Q4 shareholder letter, the trajectory of our performance marketing spend is opportunistic depending on market conditions. Stock-based compensation ((SBC)) expense increased sequentially by 14% to $191 million. Company name Quarterly SBC as a percentage of revenue Annual SBC as a percentage of revenue Coinbase 9.38% 13.91% Robinhood ( HOOD ) 7.87% 10.30% Block ( XYZ ) 5.46% 5.28% CME Group ( CME ) 1.29% 1.46% NASDAQ ( NDAQ ) 1.67% 1.91% Intercontinental Exchange ( ICE ) 1.77% 1.96% Sezzle ( SEZL ) 1.21% 1.92% Although Coinbase has a moderate SBC as a percentage of revenue compared to many high-growth companies, its SBC as a percentage of revenue is high compared to other companies with digital currency operations. Sezzle is a Buy Now, Pay Later (BNPL) service that does not involve cryptocurrency operations. Still, I have included it anyway because it’s a payment company. The company’s total operating expenses for the first quarter of 2025 increased by 7% to $1.3 billion. The first quarter of 2025 shareholder letter said the following, ” [The operating expense increase was] primarily driven by higher variable expenses resulting from elevated market maker activity earlier in the quarter, as well as losses on our crypto assets for operations .” Operating income declined 7% year-over-year to $760.46 million. The company’s first quarter 2025 net income fell 94% to $65.61 million. Its first-quarter 2025 diluted earnings per share ((EPS)) declined 95% year over year to $0.26, missing analysts’ estimates by $1.63. Coinbase First Quarter 2025 Shareholder Letter Coinbase’s second-quarter adjusted net income was $526.62 million, and adjusted diluted EPS was $1.94. The company’s first-quarter shareholder letter defines adjusted net income and reveals the reason it reports the number: In addition to our results determined in accordance with GAAP, we believe that Adjusted Net Income and Adjusted Net Income per Share, both non-GAAP financial performance measures, are useful information to help investors evaluate our operating performance. We believe it is useful to exclude tax-effected gains and losses on crypto assets held for investment from both Adjusted Net Income and Adjusted Net Income per share because (i) such investments are considered primarily long-term holdings, (ii) we do not plan on engaging in regular trading of crypto assets, and, (iii) as an operating company, our investing activities in crypto are not part of our revenue-generating activities, which are based on transactions on our platform and the sales of subscriptions and services. The following table shows the company’s net income to adjusted EBITDA reconciliation. Coinbase First Quarter 2025 Shareholder Letter The company’s first quarter 2025 adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) declined 28% to $930 million. The company’s first quarter 2025 shareholder letter reveals the reason behind reporting adjusted EBITDA: In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP financial performance measure, is useful information to help investors evaluate our operating performance because it: enables investors to compare this measure and component adjustments to similar information provided by peer companies and our past financial performance; provides additional company-specific adjustments for certain items that may be included in income from operations but that we do not consider to be normal, recurring, operating expenses (or income) necessary to operate our business given our operations, revenue generating activities, business strategy, industry, and regulatory environment; and provides investors with visibility to a measure management uses to evaluate our ongoing operations and for internal planning and forecasting purposes. Coinbase’s first-quarter 2025 $USD resources increased 7% sequentially to $9.9 billion. The company’s first-quarter shareholder letter defines $USD resources as ” cash and cash equivalents and USDC (net of USDC loaned or pledged as collateral) . ” Coinbase First Quarter 2025 Shareholder Letter Its first-quarter shareholder letter also added: We consider our crypto assets for investment and certain crypto assets held as collateral as other liquidity resources available to us. In Q1, we purchased $153 million of crypto assets for our investment portfolio, primarily concentrated in BTC. We are investing in crypto assets to meet regulatory capital needs, support growing utility, and reinforce our long-term commitment to the crypto economy. As of March 31, 2025, the fair market value of our crypto assets held for investment and our crypto assets held as collateral were $1.3 billion and $598 million, respectively. When including these crypto assets, the total available resources totaled $11.8 billion. Different financial websites account for the assets on Coinbase’s balance sheet in varying ways. For instance, Seeking Alpha measures its cash and equivalents at roughly $8.05 billion and total assets at approximately 17.45 billion. In contrast, YCharts measures Coinbase’s cash and short-term investments at $10.15 billion and total assets at $21.73 billion. Data by YCharts The company has $4.23 billion in long-term debt. It has a debt-to-equity ratio of 0.41 , meaning the company conservatively finances its operations with more equity than debt. Considering the high-risk nature of the cryptocurrency industry, that is desirable. Coinbase’s debt-to-EBITDA ratio is 7.93 . Typically, a debt-to-EBITDA ratio above 5.0 is a sign that a company may be in financial distress. However, considering the cyclical nature of Coinbase’s EBITDA, the company is unlikely to be financially distressed. The company’s metrics can be so volatile that the debt-to-EBITDA ratio may be 1.0 two quarters from now, which is typically an excellent debt-to-EBITDA ratio. Additionally, its cash and short-term investments can cover its long-term debt. Its current ratio is 2.52 , indicating that the company has sufficient liquid assets to cover its short-term obligations. Coinbase’s trailing 12-month (TTM) cash flow from operations ((CFO)) to sales is 28.20%, meaning that for every $1 of sales over the past year, it generated $0.28 in CFO. Data by YCharts Its first-quarter 2025 TTM CFO is $1.96 billion, and its TTM free cash flow ((FCF)) is also $1.96 billion, implying that the company spent little to no cash on capital expenditures over the last year. Data by YCharts Coinbase’s forecast for the second quarter subscription and service revenue is $600 to $680 million, which is disappointing the market. Analysts’ consensus estimates prior to the company’s release of first-quarter earnings were for subscription and service revenue of $707.8 million . If the company reaches the midpoint of its guidance ($640 million), it implies a sequential decline in revenue of 8%. The good news is that the company expects stablecoin revenue to continue to grow. Chief Financial Officer Haas highlighted the bad news on the first quarter earnings call: However, the main driver of the expected [subscription and service revenue] sequential decline is due to Ethereum and Solana prices, which are down approximately 36% and 25%, respectively, so far in Q2 compared to their Q1 averages. These price declines impact our blockchain rewards and other subscription and service revenue lines. The subscription and service revenue is supposed to be a relatively stable source of revenue, so the market likely dislikes seeing a sequential decline in this number, especially since the company expects macroeconomic headwinds, which could slow transaction revenue. Coinbase First Quarter 2025 Shareholder Letter Chief Financial Officer Haas said on the first quarter earnings call: Macro uncertainty including around global trade policy may contribute to softer crypto trading markets and lower asset prices as we enter the second quarter. We have navigated choppy markets before, and we are confident in our ability to maintain our long-term product roadmap and remain financially disciplined. The second-quarter transaction revenue failed to get off to a strong start, with a 12% sequential decline in spot transaction volume, indicating a slowdown in trading activity on its platform for simple buy/sell transactions of cryptocurrencies. In comparison, the global spot volume was down approximately 13%, indicating that Coinbase’s spot transaction decline wasn’t due to market share loss but rather an overall broader slowdown in the cryptocurrency market. The Chief Financial Officer also said during the first quarter earnings call: With regard to our institutional transaction revenue, as I mentioned before, we are focused on growing the derivatives trading market share, and we plan to continue our investments in trading incentives. We anticipate a $30 million to $40 million quarter-over-quarter impact in Q2. I share all this but I also need to remind you that trading markets can evolve quickly, and we do caution extrapolating monthly results. This commentary indicates that its strategic decision to grow derivative trading through incentives will result in a $30 million to $40 million sequential headwind in transaction revenue in the second quarter. The CFO also cautions investors about the volatility in cryptocurrency markets and to avoid extrapolating first-quarter 2025 transaction revenue into future quarters. Coinbase management likely issues this warning to temper investor expectations, especially since a worsening economy has the potential to drastically shrink transaction revenue. Management’s cautious second-quarter subscription and service revenue guidance, along with its guarded commentary, dampened analysts’ forward estimates. Before Coinbase released its first-quarter earnings, analysts estimated that the company would generate total revenue of $1.91 billion in the second quarter of 2025. After reviewing the company’s first-quarter results and second-quarter guidance, analysts lowered their second-quarter total revenue estimates to $1.66 billion. If the company meets analysts’ second-quarter total revenue estimates, it implies an 18% sequential decline—ouch! Valuation Coinbase’s price-to-sales (P/S) ratio is 11.48, which is well above its three-year median of 7.88. Some may interpret this ratio as indicating that the market is overvaluing the stock. If it sold at its three-year median, its price would be $202.07, a 31.5% decline from its June 19 closing price of $295.29. Data by YCharts The following table compares Coinbase’s 2025 forward P/S ratio to the estimated 2025 revenue growth (P/S/G) of several companies with cryptocurrency operations. Coinbase is the only publicly traded pure-play cryptocurrency exchange on the table. As I mentioned earlier, Sezzle is a buy now, pay later (BNPL) company. The rest of the companies have diversified businesses in the fintech space. Company 2025 forward P/S Analysts estimated 2025 forward revenue growth rates 2025 forward P/S to estimated 2025 revenue growth TTM FCF margin TTM operating margin Return On Invested Capital (ROIC) Coinbase 14.92 13.41% 1.11 28.19% 33.04% 10.95% Robinhood 30.15 23.93% 1.26 32.39% 38.96% 11.31% Block 2.56 3.76% 0.68 5% 7.4% 9.81% CME Group 28.82 6.54% 4.42 60.77% 64.92% 11.80% NASDAQ 18.61 8.52% 2.18 23.74% 26.63% 6.141% Intercontinental Exchange 20.14 6.78% 2.97 30.92% 37.47% 5.761% Sezzle 13.84 62.94% 0.22 18.14% 35.95% 69.91% Sezzle has the highest estimated revenue growth and the highest ROIC. Yet, it has the lowest forward P/S/G ratio. The market either undervalues the stock, or investors are skeptical about the BNPL business model, considering it unsustainable. The regulatory scrutiny surrounding the BNPL industry may also be unnerving investors. Although the market highly values FCF and profitability, it will lower a stock’s valuation if the perceived risk is high. CME Group has the highest P/S/G despite having a single-digit revenue growth rate. However, it has the highest FCF margin, the highest operating margin, and the second-highest ROIC. The market appears to value profitability, ROIC, and FCF over revenue growth. Additionally, CME is a prominent, trusted financial company with significant scale and other competitive advantages. NASDAQ and the Intercontinental Exchange are both primarily in the exchange business for equities, derivatives, and, in the case of the Intercontinental Exchange, commodity markets. Both companies are also establishing cryptocurrency operations. The market likely rates the NASDAQ and Intercontinental Exchange’s greater scale, diversification across asset classes, and better name recognition as reasons why it rates these companies higher than Coinbase and Robinhood. Coinbase and Robinhood have similar metrics. Both have double-digit estimated revenue growth, solid profitability, and excellent FCF margins. Robinhood has a slightly higher P/S/G, likely because the market favors Robinhood’s higher estimated revenue growth or discounts Coinbase’s volatility. In my opinion, Coinbase’s P/S/G ratio is at a reasonable level. However, if the market begins valuing Coinbase much higher than Robinhood, I will start viewing it as overvalued. Coinbase’s TTM price-to-earnings (P/E) ratio is 55.30, significantly above the financial sector median of 11.28, indicating an overvaluation. Seeking Alpha The company’s 2026 forward P/E-to-estimated EPS growth ((PEG)) is 0.85, calculated by dividing its 2026 forward P/E of 32.04 by its estimated EPS growth rate of 37.73%. Generally, the market considers a PEG ratio of 1.0 as fairly valued and will allow the PEG ratio to reach 2.0 before considering a stock overvalued. Suppose Coinbase’s 2026 PEG ratio is 1.0; the stock price would be $298.82, a 1% rise from the stock’s June 19 closing price of $295.29. If it sold at a 2026 PEG ratio of 2.0, the stock price would be $598.27, a 103% rise from its June 19 closing price. According to this analysis, Coinbase’s valuation ranges from fairly valued to a triple-digit upside. The following charts compare Coinbase’s FCF yield and price-to-FCF to those of several peers. Generally, the lower the FCF yield, the higher the valuation. Conversely, the higher the FCF yield, the lower the valuation. Price-to-FCF works the opposite way. Higher price-to-FCF signals higher valuation. A lower price-to-FCF means a lower valuation. Data by YCharts Sezzle’s FCF yield of 1.16 and price-to-FCF ratio suggest that the market may be overvaluing its FCF. Coinbase’s FCF yield of 2.46% and price-to-FCF of 40.71 indicate that the market doesn’t overvalue the stock relative to its peers. If Coinbase’s FCF yield falls below that of Robinhood’s or Sezzle’s, the market may overvalue the stock, and I would consider issuing a sell call or a hold recommendation. Risks One of the scariest risks for a crypto exchange is counterparty risk, which is the risk that the other party in a financial transaction will encounter financial difficulties and default on a loan, fail to deliver assets or become insolvent. One reason this risk can terrify the market is that, generally, investors are unaware of all a financial company’s counterparties, making it a difficult risk to anticipate. For instance, a bank in Thailand might fail, resulting in its inability to fulfill its financial obligations to a second financial institution in the U.S., which may, in turn, cause the second institution to fail. Suppose the second financial institution to fail is a counterparty to Coinbase; the failure of the second financial institution may hurt Coinbase’s financial stability. By the time an investor becomes aware that Coinbase may be in trouble, it may already be too late to exit the stock because regulators may have already halted trading. Coinbase’s first-quarter shareholder letter states the following about its counterparties: We maintained our longstanding commitment to operational and risk excellence in Q1. At the end of Q1, we had $749 million in total credit and counterparty risk (excluding banks), stemming from $517 million in collateralized loans to customers and $232 million held at third-party venues (including $136 million in unrestricted cash). As a reminder, our loans require 100%+ in collateral and are subject to rigorous risk monitoring. The company identifies $517 million in collateralized loans to customers as its most significant counterparty risk. The fact that these loans are collateralized mitigates some of the risk that customers will default on their repayments to Coinbase. For instance, if a customer borrows $100, they may need to provide $150 worth of crypto as collateral, which significantly reduces the risk of loss for Coinbase in the event of default. The second source of counterparty risk that management identifies is ” $232 million held at third-party venues (including $136 million in unrestricted cash) “. This $232 million in assets is held at other financial institutions, such as banks, other exchanges, or custodians. This $232 million is at risk that one or more of the third-party financial institutions could become insolvent or fail to return the funds. Coinbase may mitigate this risk by diversifying the financial institutions that hold its funds, selecting only the most trustworthy financial institutions, and possibly using insurance. However, in the event of financial contagion, even these mitigation efforts may fail to protect it from financial harm. A risk that some may not have considered is a significant increase in competition if the President signs the Genius Act into law. A clear regulatory framework may open up the cryptocurrency market to companies like Amazon ( AMZN ) and other big tech players. Some big tech companies may have been reluctant to dip their toes in the cryptocurrency market when it appeared to be the wild, wild west, but may quickly enter the market once it has established regulatory guardrails. Several large tech companies have greater name recognition, are trusted more by consumers and other businesses, and have greater financial resources than Coinbase. If competition stifles its revenue growth or squeezes margins, and the market perceives the company as struggling, investors may sell off the stock. Coinbase’s business and stock price are susceptible to crypto winters. Bankrate defines a crypto winter as ” a prolonged period of declining crypto prices and low trading volume, along with an overall decrease in investor sentiment . ” The latest “crypto winter ” occurred between late 2021 and early 2023, a period that began a few months after Coinbase’s initial public offering ((IPO)) on April 14, 2021. The company reached an all-time high of $429.54 on April 13, 2021, during the IPO period. In the depths of the crypto winter, the stock was down around 93% from its high to a record low of $31.55 on January 5, 2023. Data by YCharts When the crypto market crashes, Coinbase investors can suffer significant losses. Investors who are uncomfortable with the potential of substantial losses should avoid Coinbase. Coinbase is a buy Coinbase may encounter significant headwinds over the next year, and investors with short-term investment horizons should consider avoiding the stock. Additionally, only investors with some familiarity with cryptocurrency should consider investing. People unfamiliar with cryptocurrency may find it challenging to understand Coinbase’s risks, potential upside, and what to look for within the company’s fundamentals to make informed buy or sell decisions. This stock is somewhat speculative, and many factors will need to align in the crypto market’s favor, as well as specifically for Coinbase, for it to outperform the stock market over the long term. The Business Research Company forecasts that the Crypto Exchange platform market will grow from $34.973 billion at a compound annual growth rate (CAGR) of 25.55% to reach $109.109 billion in 2028. Ultimately, it forecasts that this market will reach $352.029 billion by 2033, growing at a 26.40% CAGR between 2028 and 2033. Using a reverse CAGR calculator, the Crypto Exchange market reached approximately $43.908 billion at the end of 2024. Assuming all of those figures are correct, Coinbase’s first quarter TTM revenue of $6.96 billion has captured 15.85% of the 2024 global cryptocurrency exchange market. Analysts generally consider Coinbase to be the second-largest cryptocurrency exchange globally, trailing only Binance in terms of trading volume and user base. Investors should remember that analysts’ forecasts of market size are only guesses. The actual size of the crypto exchange market may be larger or smaller than analysts estimate. Additionally, Coinbase is expanding into other businesses beyond the crypto exchange market, so the company’s actual total addressable market (TAM) is likely far larger than just the crypto exchange market TAM. This investment is suitable for investors who are willing to speculate that Coinbase’s TAM is far larger than cryptocurrency trading and are optimistic about the development of new crypto applications and services beyond simply trading and speculation. If Coinbase can withstand competition and continue to grow at a similar rate to the global crypto exchange market, its stock has considerable potential upside. A significant part of the reason the company is using incentives to attract market makers and large traders to its marketplace is to increase its trading volume and user base, thereby maintaining market share in an increasingly competitive market. Data by YCharts The potentially more favorable regulatory environment under a Trump administration should also help the company grow its business over the next three to five years. The recent jump in stock price indicates that the market is already factoring in potential growth from the Genius bill. The company’s 2026 PEG ratio suggests the stock still may have a significant upside. Risk-tolerant investors should consider investing today for potential high upside.

Source: Seeking Alpha