Coinbase bets on big finance firms as Bitcoin ETFs ‘unlocked a flywheel’ of new traders

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Coinbase first-quarter earnings revealed a notable decrease in participation from small investors compared with the crypto bull run of 2021.

Meanwhile, it’s rolling out a slew of products for financial professionals, attempting to seize on a change in the market as exchange-traded funds lure a new swathe of investors.

Coinbase posted $56 billion in trading volume from small investors, a 53% decrease from the $120 billion in the same period in 2021, even though Bitcoin surged higher this year than it did then.

Array of new traders

The launch of almost a dozen spot Bitcoin spot ETFs introduced crypto to a wider array of traders — including an influx of institutional investors lured by soaring returns and relatively low counterparty risk.

The frenzy helped Bitcoin hit an all-time high of more than $73,000 on March 14.

The ETFs “unlocked a flywheel of customer engagement across this more robust product suite,” that now includes custody, trading, financing, and staking to institutional customers, the company said.

The ETFs were a “tide that raises all ships,” Chief Financial Officer Alesia Haas said on an earnings call.

That helped drive Coinbase’s first-quarter revenue to exceed $1.6 billion, more than double that of the same period last year, and higher than analysts’ targets of about $1.37 billion.

Institutional transaction revenue in the quarter was $85 million, up 133% from the fourth quarter of last year. Institutional trading volume doubled since the fourth quarter of 2023 to $256 billion.

New perps

Haas also said the company this year launched derivatives, adding 15 so-called perpetual futures that are popular with big trading firms.

“Our focus here is on gaining liquidity, building market share, and really establishing ourselves,” she said.

Coinbase said that almost 40% of institutional clients engaged with at least three Coinbase products during the quarter.

Stock tumble

Coinbase stock tumbled 4.5% in pre-market trading as investors weighed a slump in crypto prices since the end of the quarter.

Coinbase shares tend to track gains in Bitcoin as surges in the cryptocurrency drive demand for the exchange’s trading services and other offerings.

Bitcoin — down more than 15% since March 31 — accounted for one-third of all trading volume on the platform.

The exchange posted $935 million in consumer transaction revenue, up 100% quarter-over-quarter.

Profit for the quarter included a $650 million gain on the value of cryptocurrency assets held by the company, aided by changes in accounting rules.

Under the new rules, companies need to regularly update the value of digital assets to their current market price, and any change in value must be reflected in their reported earnings.