Why Coinbase’s stock is suddenly interesting

Coinbase has tumbled in a big way in the past month – dropping alongside US stocks and crypto. That nearly 50% plunge might make this crypto exchange look like a tempting stock buy, but don’t assume it’s a bargain just yet. Some stock slips mark a real buying opportunity, but for the rest, it’s just a lower price tag.

I’ve run through this company’s numbers and built a model you can use to test various scenarios. So let’s dive in.

• Coinbase Global is one of the leading cryptocurrency exchanges in the world, offering a secure and user-friendly platform for retail and institutional investors. In April 2021, when it was listed on the Nasdaq, it became the biggest publicly traded crypto company.
• Revenues reached $6.3 billion in 2024, more than double those of 2023. Most of that ($4 billion) came from transaction fees, while the rest came from subscriptions and services – things like stablecoins and crypto staking.
• The SEC dropped its lawsuit against Coinbase, and the company is confident that stablecoin and crypto market structure legislation will be passed this year, which would help further expand the development of the crypto ecosystem.
• Now, crypto assets have recently hit a rough patch. And Coinbase’s valuation has fallen sharply, in kind. The stock is now trading on a price-to-earnings (P/E) ratio of 24x and an enterprise value to earnings before interest, taxation, depreciation, and amortization (EV/EBITDA) multiple of 11.7x, based on 2026 consensus estimates. Still, the company’s earnings are hard to accurately predict, because they are dependent on crypto prices and volumes – and those are volatile.
• The key for the firm to warrant a higher valuation will be its ability to build a more diverse and stable revenue stream – one that’s less dependent on transaction fees from trading.

What exactly does Coinbase do?

Coinbase Global is one of the leading cryptocurrency exchanges in the world – and it’s the biggest publicly traded one. Back when there were very few crypto plays on the actual stock market (meaning, before there were bitcoin spot ETFs), Coinbase was one of the darlings. Institutional investors were generally barred from putting the money they managed into cryptocurrencies, but Coinbase gave them a mainstream way to profit from crypto’s action. And the better bitcoin did, the better Coinbase did.

Coinbase’s platform makes it easy for people and institutions to engage with crypto assets – by trading, staking, safekeeping, spending, or transferring them around the globe. And its services are widely used: researchers estimate that two-thirds of Americans who have owned crypto have used Coinbase at some point. And that familiarity has helped it increase its share of both US “spot” and “derivatives” crypto trading, with over 240 different digital assets available to trade on the platform.

Now, there have been a few rather gonzo operations in this industry (to say the least), but Coinbase has mostly not aligned itself with those. Let’s be clear, the firm has had its run-ins with regulators, but it’s also managed to (mostly) build a reputation for both security and legal compliance – and that’s helped it expand into over 100 countries. In the process, the company has developed a “competitive moat” that’s been keeping other potential rivals at a distance, allowing it to continue to profit from crypto’s growth story and even grow its market share.

At the end of last year, Coinbase’s platform held over $400 billion in digital assets – more than double what it had a year earlier. And most of that was in this market’s oldest, biggest asset: bitcoin. The firm is now the world’s biggest custodian of the OG crypto, holding roughly 12% of all the world’s mined bitcoin.

Okay, so how does Coinbase make money?

Short answer: crypto fees (mostly). The company more than doubled its revenues last year, raking in $6.3 billion. The bulk of that, some $4 billion, came from crypto transaction fees, with retail investors responsible for 87% of the total and institutional investors driving the rest. Coinbase’s subscriptions and other services (things like stablecoins, staking, lending) pitched in the other $2.3 billion in revenue.

Right now, a lot is driven by activity in the market – and the fees that come from it. But the firm’s more diversified and less market-dependent revenue stream could ultimately help the firm command a higher valuation. (It just might take a while for that to play out.)

In the meantime, let’s have a look at Coinbase’s money pipelines.

Pipeline #1: Transaction fees.

Volatility tends to be a major driver of volumes. But in 2024, there were a couple of other huge drivers too: the launch of spot bitcoin exchange-traded funds (ETFs) in the first quarter, for one, and an extended rally sparked by the election of a seemingly pro-crypto US president in the fourth quarter, for another.

Coinbase is, frankly, perfectly positioned to gain when everyone flocks to the crypto market – regardless of whether they’re coming to buy or sell. The firm offers spot and derivatives trading, plus the whole marvel universe of crypto assets. And it imposes transaction fees on every move, at either a flat rate or as a percentage of the value of the assets changing hands.

Let’s face it, making money off crypto’s wild swings is a pretty savvy business model. After all, this market is famously herky-jerky. And for Coinbase, that volatility is a goldmine – more price moves mean more trading, which means more revenue. In 2024, crypto volatility jumped 37%, and the total crypto market capitalization more than doubled, rising 103%. And Coinbase was right there, watching those fees roll in.

Coinbase increased its transaction fee revenues by 162% in 2024, watching them catapult to $4 billion. Bitcoin accounted for 30% of the transaction fees, Ethereum 13%, and other crypto assets made up the rest.

Its total trading volume in the spot market grew to $1.2 trillion in 2024 – a rise of 148% compared to the year before, blowing past the broader US spot market’s 105% volume growth. A big part of that came from Coinbase’s popular new Prime suite for institutional investors – it bundles custody, prime trading, financing, and staking.

Pipeline #2: Services and subscriptions.

Coinbase’s services and subscriptions business has also been booming – it pulled in $2.3 billion last year, up 64% from the year before, and roughly 4.5x higher than during the 2021 bull market. And a huge chunk of that (we’re talking: $1.6 billion) came from stablecoins and crypto staking.

Stablecoins are exactly what they sound like – cryptos whose values remain “stable” because they track the price of regular fiat currencies like the US dollar. They make cross-border payments lightning fast and dirt cheap – but it’s many, many times higher than that if you go to a traditional bank.

Coinbase pulled in nearly $1 billion from its USD Coin (USDC) service last year – but, with the US expected to approve new legislation this year and institutions already lining up to adopt stablecoins, those revenues could soon take off massively. And here’s the thing: USDC has a network effect that creates a virtuous cycle where increased adoption leads to greater functionality – which, in turn, attracts more users. As more traditional financial transactions move to the blockchain rails (decentralized networks that use the technology to record and verify money movement), the stablecoin market is projected to explode. And Coinbase is set to be right at the heart of things, cashing in with its various fees and services.

Then there’s the staking. Coinbase allows users to stake certain cryptos (like Ethereum or Solana) and earn rewards in return. And the more folks stake, the better: Coinbase takes a cut of these rewards as a fee.

You can think of staking as the blockchain’s big, ongoing team project. Since blockchains don’t have a central authority keeping track of every transaction, the network constantly works together to verify who owns what. Crypto holders essentially “stake” their own coins to help validate transactions, and in return, they can reap rewards. Generally, multiple stakers will put up their crypto at once to validate the transaction and earn crypto rewards, but it’s mostly the luck of the draw as to who actually gets to do it. For the folks who get picked, staking yields an interest-like income stream.

Coinbase is a go-to platform for staking, offering institutional-level security and compliance so users – even the big fund manager types – can earn passive income without too much worry. It’s a good position to be in: proof-of-stake blockchains are now the norm. By 2028, innovations in so-called liquid staking derivatives and multi-chain staking solutions could reshape the market, making staking an even bigger piece of the crypto economy.

So stablecoins and staking are doing a lot of the heavy lifting in this pipeline, and subscriptions are doing the rest. Coinbase One, the company’s premium subscription service, pulled in $283 million in sales in 2024, offering perks like lower trading fees, enhanced security, and priority customer support. And its Coinbase Prime financing business pulled in $266 million – thanks to record-high loan balances and a surge in ETF-related trade financing after the US election.

And how does Coinbase spend money?

No matter how detailed your understanding of the revenue picture for a particular stock, it’ll only ever tell you part of the story. So next, you’ll need to take a look at the company’s expenses.

Last year, Coinbase’s expenses tallied almost $4.3 billion. And this is roughly how that breaks down.

First, there were transaction expenses. That included costs related to blockchain reward money, payment processing, and transaction fees. Coinbase’s transaction costs totaled $897 million, with blockchain rewards accounting for around half of those – the majority of blockchain rewards revenue gets distributed to the customer, and that’s marked on a ledger under transaction fees. Worth noting that there are no transaction expenses that come directly from stablecoin revenues or interest income.

General and administrative costs reached $1.3 billion, with personnel costs at more than $1 billion, up 11% from the year before.

Now, the company did dole out plenty of stock-based compensation last year as part of its compensation strategy – and that amounts for about $912 million of its salary costs.

Investments in technology and development were another big line-item for Coinbase. It’s spent almost $1.5 billion – and that’s because, let’s face it, it’s expensive to manage and develop a high-tech digital asset platform.

You can see that with the development of its Base “scaling layer” or “Layer 2”. Those kinds of networks or protocols are built on top of a primary blockchain. And this one’s job is making Ethereum faster, cheaper, and way more usable. The crypto’s biggest headaches (namely, slow speeds and high fees) have hampered its adoption. But Base is tackling both, making transactions smoother and more affordable. That’s good news, and not just for users – Coinbase and its shareholders have got to be pretty pleased too.

Base has been working to cement its position as the No.1 Layer 2 platform, expanding its on-chain activity and figuring out new use cases. I mean, look, Ethereum is the backbone of decentralized applications, and Base wants to be a vital piece of that structure.

Of course, Coinbase is looking further out too – hoping to potentially offer tokenized securities, predictive markets, equities, and 24/7 trading with immediate settlement. And, hey, if crypto gains more mainstream acceptance, companies could even start holding stablecoins or bitcoin alongside their greenbacks, opening up another major revenue stream for the firm.

Is it still a regulatory nightmare though?

Having some regulatory clarity is important in any industry, and it’s very much top of mind in crypto – a market that has tested the bounds of established rules since its very beginning.

There’s a sense that the new US president is moving fast to make America the world’s so-called crypto capital. Although it’s not entirely clear what that means. As perhaps one element, the administration has said it will establish a new crypto strategic reserve – but, disappointing some in the market, it later said the reserve would be created using tokens the government already owns.

So probably the biggest crypto win of the still-new term of office happened last month when the SEC moved to dismiss a case against Coinbase that claimed it had facilitated trading in 13 tokens that should have been listed as securities. It was a major relief for the company: some feared that a government win in the case could have completely upended Coinbase’s business model and shattered the broader market.

Crypto insiders believe clearer rules will speed up digital asset adoption. It’s why Coinbase is working closely with lawmakers and government agencies, hopeful that stablecoin and market structure laws will be approved this year. Its work with US regulators has already made it a go-to platform for big, institutional investors. And Coinbase firmly believes that the sooner the new laws roll out, the quicker it will see a buzz of all-new trading activity.

Bottom line: What’s Coinbase worth?

This is the interesting part. Coinbase is currently trading at a 24x price-to-earnings (P/E) ratio and an EV/EBITDA multiple of 11.7x based on 2026 earnings estimates – that’s much more reasonable than it was a month ago when the share price was trading almost 50% higher at $298. It’s also a lower multiple than the average share on key exchanges like Nasdaq, ICE, and CBOE – and, understandably so, since its profits are nowhere near as stable. But there’s more to this stock than that.

The firm holds $4 billion in net cash (that’s cash minus debt) and it’s expected to remain cash-generative – consensus estimates around $2 billion in each of the next two years. Now, with such a steady cash flow, it makes sense to use a discounted cash flow (DCF) model to try to estimate the company’s fair value. The DCF is a simple, go-to way to figure out what a stock is worth, based on a variety of assumptions you can set yourself. See, the issue with the multiples approach is that, as market sentiment changes, the “warranted” market multiple can jump around.

That said, DCF valuations are extremely sensitive to the assumptions made, and with Coinbase, you’ve got revenues that can be volatile and tricky to predict. The important assumptions – things like revenue growth, volumes, pricing, margins, new competition, and crypto growth – can be all over the place with this stock. So, to come to grips with that, I’ve mapped out three scenarios for this year – a realist’s base case, an optimist’s bull case, and a pessimist’s bear case. Let’s go.

The base case scenario. I used a realistic set of assumptions here, predicting that the crypto ecosystem would continue to evolve thanks to regulatory reform and growing crypto adoption. I used a combination of consensus estimates and my own: assuming 29% revenue growth for this year (thanks to a strong first quarter), and then 15% revenue growth for 2026, and 10% each year until 2031, when it drops to 7%. I put cash flow margins at 26% from 2027 to 2035, a terminal growth rate of 4%, and a discount rate of 14.5%. If Coinbase successfully grows its platform and its custody business, then a 17x EV/EBITDA exit multiple could be warranted. So the company is already trading near its “fair value”, or $197. You can see the assumptions made in the link here. You can also make a copy of the template and edit it to reflect your own estimates.

The bull case scenario. Let’s say this turns out to be the beginning of a crypto bull market and assume a glass-half-full 15% revenue growth from 2027 to 2035. That probably implies that bitcoin will be trading near $300,000 in ten years – because the OG crypto will likely increase in price by an average of 13% per year. Cash flow margins in this scenario will improve to 30% or 31%, and the discount rate will drop to 12%. It’s hard to predict pricing pressure – sure, new exchanges will likely enter the market if crypto use becomes way more widespread – but Coinbase would still be a dominant force in this scenario, both in crypto and in custodial services. And that suggests that a 20x EV/EBITDA multiple could be justified, and fair value could be as high as around $400.

The bear case scenario. If we assume revenue growth is a glass-half-empty flat – yep, zero percent – from 2027 to 2035, regulatory headwinds pick up, and there’s no growth at all in crypto, then, heck yeah, things would look pretty rough for Coinbase. Its cash flow margins in this scenario would drop to 23%, the EV/EBITDA exit multiple would fall to 12x, and its fair value then would drop to around $80. It could be even worse if crypto prices plunged. Luckily, the bear case seems unlikely, at least for now.

Now, traditional financial services companies typically trade at multiples – for example, Virtu Financial trades at 10x P/E and 7x EV/EBITDA. And exchanges like CME, ICE, and Nasdaq typically trade at higher ones because of their more predictable revenue stream. That’s why Coinbase is trying to diversify its revenues away from transaction fees – so it can have the best of both worlds.

In the short term, though, it’s crypto prices – not the whole crypto landscape – that are likely to be the big driver of Coinbase’s share price. And that makes it tough to get a line on. Just look at the target prices laid out by Wall Street’s analysts – the range is a sprawling $170 to $400, with the average sitting at $324. That’s the challenge in valuing this company: you’ve got to nail down where crypto’s going to go, and that’s far from easy.

Coinbase’s stock tends to move hand-in-hand with bitcoin, and I’d expect that to continue for the foreseeable. Sure, it’s underperformed bitcoin so far this year. And that’s a little surprising: the big volatility and increased trading volumes in crypto will certainly boost Coinbase’s revenues and profits this quarter – so that should be a positive for the stock.

But I think there’s a simple explanation here: the expectations for Coinbase have been just too high, so when bitcoin fell, Coinbase fell even more. Plus, undoubtedly, its subscription and service revenues are about to be hit by lower rewards and custodial fees. And, for a final bit of salt on the wound, a lot of people expected Coinbase to be promoted to the Big Show – added into the S&P 500 during the last index rebalance. And that didn’t happen.

Finally, what are the risks?

Everything in crypto has its risks. And you can count Coinbase in that too. The stock’s fortunes are, after all, closely tied to a market that’s notoriously unpredictable and volatile. So if you’ve got your eye on Coinbase stock, here are four key risks to bear in mind.

That notorious crypto volatility. Coinbase’s own website doesn’t mince its words on this front. The message to potential crypto traders is this: “Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong.” And it’s a good bit of advice to folks thinking about buying its stock too. After all, a bear market in crypto would likely result in a sharp drop in Coinbase’s revenue.

Cybersecurity. Coinbase has never had a cybersecurity incident that resulted in the loss of customer funds, and that’s a strong selling point, especially among highly regulated, tough-to-please institutional clients. But that doesn’t mean it’ll never have one. Technological failure is one of the biggest risks to Coinbase’s business. And though it’s not an immediate threat, quantum computing has the potential to threaten cryptographic algorithms, which could put it at further risk.

Competition. Close rivals like Binance and Kraken offer lower fees and a wider range of assets, which could chip away at Coinbase’s market share. What’s more, the rise of self-custody wallets and decentralized finance (DeFi) platforms could slim folks’ reliance on centralized exchanges like Coinbase. That said, the firm believes that as crypto becomes even more mainstream, it will boost the size of the total addressable market and, in turn, the business opportunities.

Regulations and lawsuits. The US political winds are blowing in crypto’s favor now, but that might not always be the case. And changes in government policies and regulations could seriously impact Coinbase’s operations and its profitability.