Coinbase Diversifies Revenue Sources as Digital Asset Trading Matures

Digital assets have experienced a significant year, with the market moving toward mainstream adoption.

This shift has resulted in a decrease in price volatility, which had been a key attraction for many investors, Bloomberg reported Thursday (May 30).

As a result, the largest U.S. crypto exchange, Coinbase, has experienced a decline in consumer trading volume and a potential shake-up in its revenue sources, according to the report.

Volatility in the digital asset market has significantly decreased in recent times. According to researcher CCData, the average volatility for digital assets dropped to 57% this year, compared to around 79% in 2021, the report said.

This decrease in volatility is seen as a sign of market maturation, as it attracts fewer speculative traders, per the report.

Coinbase, like other exchanges, relies on trading-fee revenue generated from the trading volume of cryptocurrencies. However, the decline in volatility has resulted in lower trading volumes, impacting the revenue of exchanges, according to the report.

Coinbase’s consumer trading volume in the first quarter of this year was $56 billion, compared to a peak of $177 billion in the fourth quarter of 2021. The creation of spot Bitcoin exchange-traded funds (ETFs) and the overall market maturation have contributed to this decline in trading volume.

To mitigate the impact of decreased trading-fee revenue, exchanges like Coinbase have diversified their revenue sources, the report said. Coinbase generated about a third of its sales in the first quarter of this year from sources other than trading fees. These sources include revenue share on USDC stablecoin and revenue from its Base blockchain.

The company also serves as the custodian for most U.S. spot Bitcoin ETFs and is listed as a custodian for spot Ether ETFs that are expected to be okayed by regulators, per the report.

While Coinbase’s trading-fee revenue is expected to be lower than the peak of 2021, the company’s overall outlook remains positive, according to the report.

Net income is projected to increase 20 times this year compared to 2023. The sustainability of the current bull market and Coinbase’s ability to maintain spot market share will be crucial factors in determining its future revenue. Additionally, Coinbase’s diversification efforts and its role as a custodian for ETFs position the company for potential revenue growth in the long term.