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Analyzing Coinbase's 2021 Q1 Growth: Soaring Profits, Will There Be a Ripple Effect on Platform Tokens?

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Analyzing Coinbase

Coinbase exchange, which will be listed on Nasdaq with the symbol "COIN" on April 14, released its performance report for the first quarter of 2021 and outlook for the year early on the 7th. How do other major exchanges such as Binance and FTX compare in terms of performance?

Coinbase Shines in Q1 2021 Performance

According to an announcement, Coinbase released its estimated business performance for the quarter ending March 31st this year, with the following results:

  1. Monthly active users who are trading users reached 6.1 million per month, with a total registered user base of 56 million.
  2. The platform's assets totaled $223 billion, capturing an 11.3% market share. The overall cryptocurrency market value was $1.974 trillion at the time of writing.
  3. Q1 trading volume was $335 billion, tripled from the previous period.
  4. Q1 revenue was $1.8 billion, doubled from the previous period.
  5. Q1 net profit was $730-800 million, tripled from the previous period.
  6. Q1 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was $1.1 billion, nearly tripled from the previous period.

Detailed Data: A Significant Gap Compared to the Past

Based on documents submitted to the SEC by Coinbase, as of the end of 2020, the number of verified users stood at 43 million, showing a 34.4% growth from 2019. However, in just Q1 of 2021, it grew by 30%; in 2020, there were 2.8 million monthly active users, while in Q1, there were 6.1 million; the platform's assets increased dramatically from $90.307 billion in 2020 to $223 billion in Q1 due to institutional asset inflows; and the trading volume surged from $193.097 billion for the entire year of 2020 to $335 billion in Q1 of 2021.

According to analysis by The Block, Coinbase saw a significant growth in profit in the first quarter of 2021, both in trading and non-trading revenue.

Quarterly Profit

The Block conducted a more detailed analysis, comparing profit to trading volume, and found a decrease in this ratio from 0.67% to 0.56%. They believe that with the expansion of trading volume, more market makers are involved, leading to lower transaction fee costs and thus a decrease in the ratio. However, the decrease is much lower than expected, indicating that more retail users have entered the market.

Profit-to-Trading Volume Ratio

Additionally, The Block's Research Director, Larry Cermak, offered his observations. He believes that

projecting stable growth based on current profit data is unreasonable.

Moreover, Coinbase's trading volume has certain cycles, and a slight market cooldown could lead to profit decline. The data from March shows a 25% decrease in trading volume compared to February.

Some users also expressed concerns that Coinbase's revenue mainly comes from trading income, lacking diversified revenue sources, which may pose challenges during market downturns. However, their acquisition business may provide some assistance.

According to Forbes analysis, Coinbase's current revenue sources include: Coinbase spread, Coinbase Pro trading fees, Coinbase Commerce payment services, Coinbase Card cryptocurrency debit card, and USD Coin USDC stablecoin. In addition, Coinbase Prime secures certain revenue from institutional purchases of Bitcoin like MicroStrategy and Meitu.

FTX Claims: Better Data, But Not as Profitable

FTX exchange founder SBF expressed curiosity about Coinbase's profit structure, considering it a significant step for the industry. Nonetheless, he compared FTX to Coinbase, as he previously complained that FTX has much higher trading volumes but earns less due to Coinbase's high fees.

He stated that FTX's data is as follows:

  • FTX's Q1 profit is 5-15% of Coinbase's.
  • FTX's Q2 net profit is 10-25% of Coinbase's.
  • Coinbase has twice the trading volume.
  • Fewer users compared to Coinbase.
  • Higher quarterly growth.

Binance: 15th BNB Burn Coming Soon

Based on past estimates, if Binance follows a certain proportion of BNB token burn based on trading volume, it generated at least $1.734 billion in trading revenue in 2020. Details: Ethereum Hits New Highs, Binance Q4 Performance Strong! Massive Trading Volume Destroys $165 Million Worth of BNB

The most recent BNB token burn was the 14th burn on January 19th. Following the schedule, Binance is expected to announce the amount of BNB burn in Q1 of 2021 soon. Considering Coinbase's listing on April 14th, for marketing purposes, Binance is likely to announce the token burn status around the same time as Coinbase's listing to promote its own performance.

14th BNB Token Burn:

Coinbase Ripple Effect, Platform Tokens Soar

Nasdaq trading data shows Coinbase's implied valuation reaching $100 billion; as of the deadline, in the equity token market on FTX, the trading price is $480, resulting in a market valuation of $120 billion based on 250 million shares.

These numbers provide "better-trading-volume" exchanges with a lot of room for imagination. Although there is no evidence that "platform token valuation" is equivalent to "stock valuation," people tend to project this equivalence.

From the chart below, it is evident that there is a significant gap in platform token valuation compared to Coinbase. In spot trading, Binance and Huobi outperformed Coinbase in trading volume; however, most exchanges surpass Coinbase in derivatives trading volumes as Coinbase is not allowed to engage in derivatives trading under U.S. regulations.

It is worth noting that all exchanges may have inflated trading volumes unless there are audited accounting results, and trading revenue should only be considered as a reference.