Summary The GENIUS Stablecoins Act could drive a 8x surge in USDC market cap, positioning Coinbase for outsized growth in its stablecoins revenue stream. Coinbase’s Deribit acquisition is attractively valued and expands TAM into the much larger crypto derivatives market, boosting transaction volumes and profitability. Declining stock-based compensation and the business model's strong operating leverage set the stage for significant margin expansion as the business scales. COIN trades at reasonable valuations versus its comps and its historical valuation band. I strongly believe COIN vs SPX500 is on the cusp of a big breakout to the upside. Thesis Coinbase ( COIN ) is benefiting from multiple promising catalysts, making me very bullish on the stock: The GENIUS Stablecoins Act can lead to a leap-frog acceleration in USDC adoption and growth The Deribit acquisition looks like a good deal that can accelerate transaction volume growth A gradual reduction in stock-based compensation paves the way for scale-driven margin expansion Valuations are reasonable COIN vs SPX500 technicals look poised to breakout The GENIUS Stablecoins Act can lead to a leap-frog acceleration in USDC adoption and growth First, some context on Coinbase's stablecoin position: Stablecoin Revenues (USD mn) (Company Filings, Author's Analysis) Coinbase makes money from the USDC stablecoin by earning interest on USDC reserves. It has a 50/50 revenue share agreement for this with Circle Internet Group ( CRCL ). Now, the market cap of USDC is currently $61 billion and so Coinbase's TTM Stablecoin revenue of $1,011 mn implies a 3.3% interest yield on USDC reserves, which passes the sense check as it is in the range of typical interest yields on USD cash. The total stablecoins market cap is $252 billion . Hence, USDC commands a meaningful 24% market share among stablecoins. It is the #2 largest stablecoin after Tether ( USDT-USD ). Now, major growth catalyst has come into play recently; the US Senate has passed a legislation called the GENIUS Act, which creates a regulatory framework for USD stablecoins. I expect this to accelerate stablecoin adoption in a meaningful way. And due to its scale, USDC is one of the biggest beneficiaries that can see increased adoption. For context on the scale of benefits we can expect, some analysts expect the stablecoin market to grow 8x to $2 trillion . So if USDC maintains its market share (a reasonable assumption in my view), this would correspond to an increment of $7 billion of annual value to Coinbase's stablecoin revenues. As you can see in the chart above, Coinbase's stablecoin revenues are already growing rapidly at >50% YoY. But with this catalyst, I expect this growth to meaningfully accelerate further. Here's another way to understand the scale of this catalyst's potential: From a mix perspective, a 8x increase in stablecoin revenues implies a revenue mix shift from ~15% to >50%, holding all else equal: Revenue Mix (Company Filings, Author's Analysis) The Deribit acquisition looks like a good deal that can accelerate transaction volume growth Coinbase is on track to acquire cryptocurrency derivatives platform Deribit by the end of this year: this strategic acquisition will establish Coinbase as the premier global platform for crypto derivatives, enhance profitability, and add diversity and durability to our trading revenues… This transaction is subject to regulatory approvals and other customary closing conditions and is expected to close by year-end. - Q1 FY25 Shareholder Letter The consideration paid will be $2.9 billion. Now, Deribit's FY24 transaction volumes was $1.185 billion . And assuming a realistic transaction take rate of 0.025% , this leads to implied FY24 revenues of $296 million, corresponding to a 9.8x EV/Revenue multiple for this M&A transaction: Deribit M&A Transaction Multiple Estimate (Deribit, Architect Partners, Coinbase, Author's Analysis) This looks like a pretty good deal when we consider how the average M&A deal in the Blockchain & Crypto space has been done at a 22.5x EV/Revenue multiple : FinTech M&A EV/Revenue Transaction Comp Multiples (Finro Financial Consulting, Author's Annotations) So I think Coinbase management has proven some valuation discipline here. And this makes me optimistic on the company's additional M&A-driven growth prospects down the line: We are looking at acquisition opportunities, doesn’t mean we swing at every pitch. We want it to be the right opportunity. - CEO Brian Armstrong I expect the inclusion of Deribit to lead to a major lift in transaction volumes, which have already been ticking up: Transaction Revenue (USD mn) (Company Filings, Author's Analysis) For context, in Apr '25, crypto derivatives trading volumes had 75% share of overall crypto trading volumes ($5.14 trillion derivatives vs $1.76 trillion spot). Coinbase has so far majorly been in the crypto spot market trading business. I think by foraying into crypto derivatives, it can tap into a much bigger market. Another bonus is the fact that Deribit's addition to Coinbase's business will lead to an immediate profitability boost: We expect Deribit to immediately enhance our profitability and add diversity and durability to our trading revenues - Coinbase's CFO Alesia Haas in the Q1 FY25 earnings call A gradual reduction in stock-based compensation paves the way for scale-driven margin expansion One thing I always check for in tech growth stocks is the stock-based compensation intensity since sometimes, firms do not see any reductions in this real opex figure despite impressive growth in revenues . Stock based compensation % of revenue (Company Filings, Author's Analysis) It is very good to see that for Coinbase, stock-based compensation as a % of revenues has indeed been declining over time. I think this explains the impressive EBIT margin expansion over the last couple of years: EBIT margin (Company Filings, Author's Analysis) I would say Coinbase's business model is a highly attractive one as it is very scalable. Most of the revenue sources are not dependent on labor input or incremental product/service sales. Rather, the growth is linked directly to the evolution and increased participation in the cryptocurrency financial market scale. This is why there is tremendous operating leverage on labor. Just look at the annualized EBIT levels per full-time-employee (FTE): Annualized EBIT per FTE (USD) (Company Filings, Author's Analysis) I expect the degree of this scale-driven operating leverage to only grow in strength going forward. Valuations are reasonable COIN's 10yr fwd PEs are at 51.7x. This corresponds to a 109% premium to a broad compset involving other cryptocurrency platforms, brokerages, exchanges and payment companies: 1-yr fwd PE Comps (Capital IQ, Author's Analysis) This 109% premiums is just a little higher than the typical 92% premium that COIN has commanded over these comps: COIN 1-yr fwd PE vs Comps vs Time (Capital IQ, Author's Analysis) And COIN's 1-yr fwd PEs are also very close to the longer-term median level of around 53x: 1-yr fwd PE and MCAP (USD mn) (Capital IQ, Author's Analysis) So I believe COIN is reasonably valued right now. COIN vs SPX500 technicals look poised to breakout If this is your first time reading a Hunting Alpha article using Technical Analysis, you may want to read this post , which explains how and why I read the charts the way I do. All my charts reflect total shareholder return as they are adjusted for dividends/distributions. Relative Read of COIN vs SPX500 COIN vs SPX500 Technical Analysis (TradingView, Author's Analysis) Relative to the S&P500, COIN is in a strong bullish trend and has recently printed higher lows indicating healthy interest from the buyers. I expect the ratio prices to break the minor resistance level ahead as it launches rapidly toward the next major monthly resistance level, and potentially beyond. Takeaway & Positioning Coinbase is seeing multiple growth catalysts kick in at the same time. The GENIUS Stablecoins Act is a major driver of USDC-related revenues for Coinbase (and also Circle Internet Group). I think it can lead to up to a 8x increase in revenues from this stream. Coinbase is on track to acquire a cryptocurrency derivatives trading platform by the end of this year. This expands the TAM for Coinbase meaningfully as the cryptocurrency derivatives market is a much larger market than spot cryptocurrency market. Also, estimates show that this M&A purchase is being done in a valuation-disciplined way, which boosts my confidence in the firm's future M&A prospects as well. I really like Coinbase's business model as it is not linearly dependent on labor nor even product or service sales. Instead, the main growth driver is simply the scale of the cryptocurrency market as a whole. This feature enables for impressive operating leverage, which is why I am bullish on margin expansion prospects too. I think COIN's valuations are trading at relatively reasonable levels vs its comps and vs its own historical valuation band as well. And I strongly believe COIN vs SPX500 technicals are at the cusp of a major breakout to the upside. So I am rating the stock a 'Strong Buy' . Key risks and monitorables include a closing of the Deribit acquisition and USDC's stablecoin market share (as this directly affects the growth prospects of Coinbase's stablecoin revenue stream). How to interpret Hunting Alpha's ratings: Strong Buy: Expect the company to outperform the S&P500 on a total shareholder return basis, with higher than usual confidence. I also have a net long position in the security in my personal portfolio. Buy: Expect the company to outperform the S&P500 on a total shareholder return basis Neutral/hold: Expect the company to perform in-line with the S&P500 on a total shareholder return basis Sell: Expect the company to underperform the S&P500 on a total shareholder return basis Strong Sell: Expect the company to underperform the S&P500 on a total shareholder return basis, with higher than usual confidence The typical time-horizon for my views is multiple quarters to more than a year. It is not set in stone. However, I will share updates on my changes in stance in a pinned comment to this article and may also publish a new article discussing the reasons for the change in view.
