Coinbase Transaction Revenue Stream Might Get “Killed” by Bitcoin and Crypto ETFs, Analyst Argues

Ram Ahluwalia, CFA, Founder of PeerIQ and careful observer of the Fintech, Crypto, markets, and startups space, has posed what he claims to be “a $100 billion question” for Coinbase.

Ram argues that if virtual currency (exchange-traded-funds) ETFs are inevitable, then consumers will purchase Bitcoin (BTC) in their brokerage accounts. He also thinks “convenience wins” and questions whether this will “kill” Coinbase’s core transaction revenue stream.

Ram notes:

“Coinbase is heavily dependent on transaction revenue (96% of total). And we should expect transaction fees to compress from 150 bps to 5 to 10 bps (the ‘rate’ for esoteric capital market ETFs). Can Coinbase continue to make money via altcoin trading, staking, inst’l custody? Yes. But none of those are meaningful revenue streams…and I would not expect that to change. Note BTC / ETH trades comprise 56% of Coinbase tx revenue in 2020…”

Ram adds:

“Reminder that eTrade sold for about $13Bn… TD Ameritrade sold to Schwab for $22 Bn…@RobinhoodApp secondaries are $20 to $40 Bn… And yet all these firms can offer spot access to crypto the day ETFs are launched… Can Coinbase make money via credit cards. Yes…but how big can it get? Capital One, card issuing leader, is worth $58 Bn. 50 competing crypto rewards cards are at various points of launching…”

Ram continues:

“Can Coinbase launch its own ETF? Yes. So you can charge 50 bps (in the initial years). But then you’re playing a market share game with players like Van Eck, Fidelity, and BlackRock that have established distribution. Are there customers that will insist on owning the asset directly (‘not your keys, not your crypto’). Yes. But Coinbase is a centralized market. That market is already on metamask/Uniswap.”

According to Ram, the greatest upside opportunity for crypto is in “mainstreaming” the asset to traditional institutions and also the mass market. He also notes that it appears that ETFs will  “gobble up, at lower fees, the vast majority of that growth.”

He adds that Fintechs such as Robinhood, Square and Paypal (others could also follow) are providing crypto access with brokerage or “bank-like” capabilities and Coinbase may have two choices.

Ram suggests:

“1) Specialize further (bet the business on growth in altcoins need for ETH to tap Ethereum apps) or 2) Close product gaps with brokerage or crypto banks. I don’t see how either solves the problem of preserving high transaction fee revenue in a PFOF zero fee world.”