That same month, the SEC announced it was suing Ripple and two of its founders for violating U.S. securities laws. Coinbase was forced to de-list XRP, which at the time was the third most-valuable cryptocurrency in the world.
It’s difficult to tell how the loss of XRP affected Coinbase’s earnings because Bitcoin at the same time was skyrocketing to records, said Bloomberg Intelligence’s Chariell. A greater risk would be the need to de-list many of the alt coins Coinbase now offers if the SEC case determines XRP is a security.
“It is a risk, definitely, but I just don’t think it’s a big risk at this point,” she said.
Despite the XRP scrutiny, Coinbase’s expansion plans seem to be working. In 2020, coins on the exchange other than Bitcoin and Ether accounted for the largest revenue share, at 44%, according to its SEC filing.
“It made economic sense for Coinbase to list high-demand tokens due to higher competition from other exchanges,” Messari’s Christanto said.
Bitcoin Link
Another risk: Coinbase’s fortunes tend to correspond to Bitcoin’s volatile history. The exchange only turned a profit last year as institutional demand for crypto assets propelled Bitcoin and other coins such as Ether to new highs. The recent lean years, known as the crypto winter, stretched from 2018 to 2019, with Bitcoin hitting a low of about $3,100 in December 2018. Until then, Coinbase was known for listing only the big hitters in the crypto world, including Bitcoin, Litecoin and Ether.
Coinbase’s prospects won’t come down to a single token like XRP. The majority of its revenue comes from trading fees, with retail customers charged an average of 1.4% and institutional clients about 0.05%, according to Christanto.
To get it through the lean years, Coinbase has conducted seven fundraising rounds for a haul of more than $500 million since September 2012, Messari research shows. That’s on top of the revenue from selling Bitcoin and Ether, which more than tripled last year to $134 million, according to Messari.
All of that has provided a strong financial position for Coinbase to list publicly. Based on figures provided by the company, Chariell calculated that 5.5 million monthly users equates to $3 billion in 2020 revenue. The top 12 fintech firms to go public in the last six months have had price-to-sales ratios of 36 times, she said. Multiplying that by 2020 revenue gets you a very large number.
“You’re easily over $100 billion in market cap,” she said.
—With assistance from Olga Kharif and Matt Robinson.
This article was provided by Bloomberg News.