Summary Coinbase became the first crypto-native company in the S&P 500, signaling broader institutional acceptance of digital assets. COIN dominates crypto custody, holding keys for 90% of Bitcoin ETF assets as well as keys for the US Marshals Service. The investment case hinges on retail trading growth and institutional Bitcoin adoption. Subscription & services revenue is the signal in its Q1 results, and transaction revenues are noise. As crypto adoption spreads, Coinbase is positioned as the trusted infrastructure provider for sovereigns and corporations. In a landmark decision, Coinbase Global ( COIN ) became the first crypto-native company to be added to the S&P 500. Millions of 401k's across the United States now have exposure to a company with Bitcoin (BTC-USD) in its corporate treasury. Many average Americans now have exposure to Bitcoin by proxy. Beyond the headline, though, Coinbase has quietly positioned itself to be a dominant player in cryptocurrency for years to come. As this nascent industry continues to take shape, there is a very high likelihood that Coinbase will continue to grow alongside it. Coinbase is uniquely positioned to benefit from two bullish tailwinds currently: speculative retail trading and institutional Bitcoin adoption. These are two meaningful growth levers in a volatile industry. As a trusted custodian and dominant exchange, it stands to benefit regardless of who enters the market; be they retail traders, corporations, or sovereigns. I rate the stock a Buy. Company Overview Coinbase facilitates the trading and custody of cryptocurrency. The company offers exchange services; allowing users to buy crypto with USD, swap cryptocurrencies with each other, stake crypto, and earn interest on cash with stablecoins. The Custodian of Choice Coinbase is by far the largest Bitcoin custodian for Bitcoin ETFs, holding the keys for 8 of the 11 major Bitcoin ETFs. It custodies 90% of the Bitcoin held in ETFs. On top of that, Coinbase is deeply embedded within the US government, as it custodies the crypto assets that are seized by the U.S. Marshals Service . The company earns a small fee on assets under custody ("AUC"), which varies by entity. Enterprise and sovereign interest in holding Bitcoin as a treasury asset is still a relatively niche concept, but Coinbase has put the infrastructure in place to facilitate the mass adoption of such. Investment Case The investment case in Coinbase is quite simple. It hinges on two key factors: 1) an increase in retail speculation and 2) an increase in institutional adoption. Retail trading volume is directly linked to market volatility. During the crypto winter of 2022, brought on by the collapse of FTX (a key Coinbase competitor), Coinbase trading volumes plummeted, and the stock value fell in concert. We are a long way from that crypto winter. Bitcoin recently eclipsed the $100k threshold again for the first time since February. The regulatory environment has become much warmer. The crypto market is rampaging forward. Retail speculation typically spikes in periods like this. Further, the trend toward institutional and governmental adoption is clear. Three states have started strategic Bitcoin reserves, and the New York City mayor hosted the first-ever Crypto Summit this month. There are more institutions now than ever before accumulating Bitcoin. This trend seems certain to continue. As more companies begin accumulating Bitcoin, Coinbase stands to benefit disproportionately compared to the companies that currently hold Bitcoin. The initial institutions that adopted Bitcoin are tech fanatics like Strategy (formerly MicroStrategy) ( MSTR ) or crypto-native companies like MARA Holdings ( MARA ) or Block ( XYZ ), so they don't rely on custodian partners like Coinbase. They self-custody their keys. As more non-crypto native companies seek to simply participate in the upside of Bitcoin without worrying about key maintenance, Coinbase's custody services are the best choice. The company is the largest and most well-regarded, as illustrated by its partnership with ETFs and the US government. This holds true for sovereigns as well, who need not bother with key maintenance. They simply desire a reserve asset, and Bitcoin is increasingly being considered as such. Many governments will likely opt for a custodian partner. Coinbase already has a vote of confidence from the most influential government in the world. It's a very privileged position to be in. In short, the two core underlying factors that will drive positive stock returns for Coinbase are looking extremely bullish. As these trends continue throughout 2025, I expect the stock to significantly outperform the major indices. Q1 Earnings Coinbase generated $2b in total revenue, split between $1.3b in transaction revenues and $698m in subscription and services growth. The 10% sequential decline in revenues was driven by a sharp 19% decline in transaction revenue in the quarter. The subscription and services segment, which includes custodian fees, stablecoin revenue (Coinbase shares USDC interest revenues with Circle), and Coinbase One subscriptions, grew 9% QoQ. The company suffered from the relative weakness of the crypto market in Q1. The crypto market is horribly volatile, as any crypto trader or onlooker is well aware, and this volatility hits Coinbase quite hard. This underpins the importance of the durable subscription & services line items. The company expects this to drop marginally next quarter to $600m-$680m, but management is focused on growing this line item over time. Coinbase's long-term value creation hinges far more on subscription & services growth rather than retail trading volume. The crypto market is basically the stock market on steroids. The fickle nature of retail equity traders is amplified in crypto trading because a much larger share of the overall crypto trading volume is comprised of retail funds. As bear markets take hold, volumes plummet. And vice versa. This makes Coinbase's trading revenue a very volatile metric and not one that should be relied upon for long-term investment returns. The subscription & services segment is the signal in Coin's Q1 report, transactions revenue bumpiness is noise. The company is set to compound subscription & services revenues quite well. The growth in sovereign and enterprise adoption will lead to durable growth in the company's custodial business, while the returns from a bull market should lead to increasing USDC balances. I believe the market broadly has bottomed for 2025 and considering crypto as an asset class is very high beta, I see a lot of upside. This will mostly be powered by Bitcoin, which is the leading indicator for all crypto returns. I've written on Bitcoin several times, most recently explaining why the seminal cryptocurrency benefits from President Trump's tariff gambit . Bitcoin has several other bullish tailwinds, namely the increasingly fervent pace of institutional adoption, the financialization of Bitcoin, and more regulatory clarity. With rising government and enterprise adoption of Bitcoin, Coinbase will enjoy a twofold benefit. First, I expect the ensuing supply shock in Bitcoin to send the price much higher in the coming months. This will pull the overall crypto market up along with it and increase transaction revenues for Coinbase. Second, Coinbase is likely to be the custodian of choice for many of these large entities, providing durable growth for subscription and services. The stock has a lot of upside potential in the coming months. This upside potential is why I believe that, despite the premium valuation , Coinbase presents quite a compelling opportunity right now. The company trades at a hefty 43x forward non-GAAP earnings, 9x forward sales, and 27x forward EV/EBIT. These are high for a company with bumpy growth, but we're at a favorable point in the cycle. The volatility of crypto deserves a premium. Bitcoin is wavering around all-time highs, and more institutions than ever are piling in. The regulatory environment is clearing up. It's highly likely the flagship cryptocurrency will go much higher before it goes lower, so I find it very likely that Coinbase will exceed expectations in trading revenues 2025. An upside surprise in transaction revenues justifies a premium multiple for now, but as previously stated, this cannot be relied on for long-term returns. What will drive long-term returns is the company's institutional business, which benefits enormously from the recent spate of companies (like GameStop and DJT media) buying Bitcoin. This trend allows Coinbase to diversify its revenue base and shield it from the worst of crypto's downside volatility. The company's position as the leading institutional partner absolutely justifies a premium valuation, and at the moment, I see further upside due to my expectation of a surprise beat in transaction revenues this year. Risks Of course, half of my investment thesis here hinges on the crypto bull market continuing on through the remainder of 2025. This is anything but certain. Sentiment in crypto turns to despair just as quickly as euphoria takes hold. A lot of Bitcoin's current bullish price action hinges on institutional adoption driving a strong supply shortage. Should there be hiccups in this road; major institutions selling their Bitcoin, ETFs shuttering, or Bitcoin whales taking profits en masse, the crypto market could quickly tumble into a bear market. To me, this seems unlikely. But it is far from impossible. Further, much of the recent euphoria in crypto markets stems from an increasingly favorable regulatory environment. US President Donald Trump has cozied up to cryptocurrency, New York City is taking steps to become the 'crypto capital of the world', and several states are considering strategic Bitcoin reserves. Bitcoin price action front-ran many of these announcements, and should the regulatory environment take longer to adjust favorably for crypto, we could see material downside in Coinbase's trading revenues. Investor Takeaway Coinbase is a rare source of transparency in a trustless environment. The company recently encountered a data breach , and CEO Brian Armstrong took to X (formerly Twitter) to report on the issue . This is the type of transparency that will keep Coinbase relevant for years to come. This is what the crypto industry desperately needs. This is what has allowed the company to become the custodial partner of the largest financial institutions in the world. It is what will allow the company to continue innovating and compounding in an industry widely criticized for its lack of utility and value destruction. Coinbase isn't betting on crypto's future success. It's building the infrastructure to define and facilitate that success. I rate the company a Buy.
