My Investment Memo For Coinbase
To Investors,
I wrote an investment memo for Coinbase, a U.S. based digital assets exchange.
I hope you enjoy reading this, please let me know wha you think…
Summary
This investment memo supports an argument for Coinbase to be the number one digital assets exchange globally, building on Coinbase’s market leading position for access to digital assets services for retail customers, as an on-ramp for institutional customers, as a beneficiary of regulatory tailwinds, and as a strategic player as stablecoin usage grows. We believe that investing in the digital assets market by supporting a platform will be the winning strategy for our business as well as for our partners.
Key Investment Highlights:
Platform strategy, enabling diversified revenue streams beyond trading; including stablecoin revenue, institutional services, and retail services.
As of December 31, 2024, approximately $15.2 billion worth of digital assets were held on behalf of individual consumers (retail) staked through Coinbase
As of December 31, 2024, over $8.1 billion worth of assets were staked by institutional customers through Coinbase Prime
Market leader with 6% global digital assets exchange market share and dominant U.S. position
Beneficiary of regulatory tailwinds
Coinbase integration with traditional finance institutions
Largest transparent and fully compliant digital assets exchange globally. Coinbase holds customer assets one-to-one at all times.
Strong financial recovery with 2024 revenue of $6.6 billion (+111% YoY) and net income of $2.6 billion
In 2024, the Securities and Exchange Commission (the “SEC”) approved 11 spot Bitcoin ETF applications, nine of which partner with Coinbase, and nine Ethereum ETF applications, eight of which partner with Coinbase.
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Problem & Solution
Digital assets are primarily a set of technologies that upgrade the plumbing of the global financial system strengthening wealth preservation through bitcoin, improving transaction settlement times and drastically cutting transaction costs through blockchain and smart contract technologies, and ensuring transaction transparency and asset security as it relates to public safety and anti money laundering.
Chart comparing settlement cost for transactions processed through the SWIFT gpi, Correspondent Banking, International Bank Wire, U.S.Domestic Bank Wire, SWIFT Wire, a Stablecoin Processor, and a Stablecoin Issuer
Chart comparing and illustrating the increasing transaction costs as transaction size grows, comparing transactions processed through Stablecoins, SWIFT Wire, International Bank Wire, and Correspondent Banking.
Chart comparing settlement cost for $1000 processed through the SWIFT gpi, Correspondent Banking, International Bank Wire, U.S.Domestic Bank Wire, SWIFT Wire, a Stablecoin Processor, and a Stablecoin Issuer
Chart showing wealth preservation through bitcoin vs traditional financial assets
The Coinbase Platform
Coinbase operates a robust platform serving customers across 102 countries, with a diversified user base spanning retail investors, institutions, developers, and ecosystem partners. This section outlines its customer segments, product offerings, market position, and technological edge, providing a balanced view for investment consideration.
Customer Segments
Coinbase targets four key groups:
Consumer Retail: Individuals investing in, trading, or engaging with crypto assets on-chain.
Institutions: A wide range of entities, including market makers, asset managers, hedge funds, banks, wealth platforms, registered investment advisors, payment providers, and corporations.
Developers: Entrepreneurs, merchants, crypto issuers, and organisations building decentralised protocols, applications, and services.
Ecosystem Partners: Banks and financial institutions integrating crypto solutions into their offerings.
This segmentation reflects Coinbase’s strategy to capture both retail and institutional demand while fostering Web3 innovation.
Product Offerings
Coinbase’s products fall into two categories:
Transaction Products:
Consumer trading
Prime trading (institutional-grade)
Market services
Base Protocol (Layer 2 blockchain)
Coinbase Wallet (self-custodial wallet)
Subscription Products and Services:
Stablecoins (e.g., USDC)
Staking services
Custody solutions
Coinbase One (retail subscription)
Institutional financing
Coinbase Developer Platform
These offerings position Coinbase as a full-service provider, blending traditional exchange functions with DeFi and Web3 capabilities.
Market Position and Scale
Coinbase manages over $400 billion in digital assets, representing 12% of all Bitcoin and 11% of all staked Ethereum. This scale underscores its role as a leading custodian and a key entry point for institutional capital. Total trading volume for Coinbase was $237 billion in Q2 2025, up from $226 billion in Q2 2024.
Exchange Business: As the third-largest digital asset exchange globally, Coinbase processes approximately $1.69 billion in daily trading volume. In the U.S., it dominates regulated exchanges, bolstered by support for 298+ digital assets, institutional-grade security, and compliance. Its market share exceeds competitors like Kraken and Gemini, though it trails global leaders like Binance in total volume.
Growth Metrics: In Q4 2024, consumer trading volume surged 224% year-over-year, with institutional volume up 176%. This balanced growth highlights Coinbase’s broad market penetration and resilience across cycles.
Technology Infrastructure
Coinbase’s technology is a competitive strength:
Security: Over its 13-year history, Coinbase has avoided major breaches affecting customer funds, a critical factor for institutional trust and regulatory approval.
Base Blockchain: Built on the OP Stack, Base offers faster, cheaper transactions than Ethereum while integrating with DeFi ecosystems. This innovation positions Coinbase to continue to benefit from the growth of Web3.
Retail
As of December 31, 2024, approximately $15.2 billion worth of digital assets were held on behalf of individual consumers staked through Coinbase. Coinbase commands a substantial retail user base, boasting over 120 million customers worldwide as of 2025, making it the largest U.S.-based cryptocurrency exchange. Retail investors – individuals trading and investing in crypto for personal use – play a pivotal role in Coinbase’s ecosystem. Retail trading volume was $43 billion in Q2 2025, with 8.7 million monthly transacting users (MTUs), up from ~8.1 million in Q2 2024. For FY 2024, the retail (consumer) class contributed 52% of the total transaction revenue for Coinbase.
The growth potential for the retail crypto market is vast. Rising adoption, driven by increased awareness and seamless access via platforms like Coinbase, continues to draw new individual investors. Demographic shifts further amplify this trend, with younger generations – particularly millennials and Gen Z – showing a strong inclination toward digital assets. Additionally, the integration of crypto into mainstream finance, such as through ETFs and specialised integration agreements, opens new entry points for retail participation. Regulatory clarity, with key advancements solidified in 2025, will continue to enhance retail confidence, further accelerating market growth.
Coinbase is strategically positioned to harness this potential. Its intuitive, user-friendly platform, bolstered by initiatives like the "Learn and Earn" program – where users earn crypto through educational modules – caters directly to retail investors. The company’s global expansion into markets like Japan, Germany, and the UK, among others, broadens its retail reach, tapping into diverse pools of individual users.
Institutions
As of December 31, 2024, over $8.1 billion worth of assets were staked by institutional customers through Coinbase Prime. Coinbase has positioned itself as a cornerstone of institutional adoption of digital assets in the United States first, serving as the custodian for 9 out of 11 spot Bitcoin ETFs and 8 out of 9 Ethereum ETFs in FY 2024. This dominance underscores its status as a trusted partner for traditional financial institutions entering the crypto space. In FY 2024, institutional services accounted for approximately 5.2%% of Coinbase’s total transaction revenue, a 1.8x increase from FY 2023. Institutional trading volume for Q2 2025 was $194 billion – reflecting growing demand from hedge funds, asset managers, and corporations.
The company’s international derivatives exchange has also seen explosive growth, with average daily volume surging 6,200% in 2024, driven by institutional interest in hedging and speculative strategies. While this figure highlights Coinbase’s ability to capture market share, such rapid growth may not be sustainable long-term as the derivatives market matures.
On July 18, 2025, President Trump signed the GENIUS Act into law, a landmark piece of legislation that provides regulatory clarity for stablecoin issuance and adoption in the U.S. The Act establishes guidelines requiring stablecoin issuers to maintain liquid reserves and comply with transparency standards. As a highly compliant and transparent exchange, Coinbase is well-positioned to benefit from this framework, potentially expanding its role in stablecoin-related services.
Risk Assessment
Coinbase operates in a rapidly evolving and highly competitive cryptocurrency industry, facing a range of risks that could impact its business and financial performance. These risks include market and regulatory uncertainties, competitive pressures, and operational and technological challenges. However, Coinbase’s proactive strategies, robust compliance framework, diversified business model, and technological investments position it to effectively mitigate these risks. Below is an assessment of each risk category, supported by recent developments and insights relating to mitigation strategies.
Market Risks
Cryptocurrency markets are inherently volatile, with digital asset prices subject to sharp fluctuations driven by factors such as investor sentiment, macroeconomic conditions, and geopolitical events. This volatility directly affects Coinbase’s trading volume and revenue, as revenues for Coinbase are dominated by transaction fees under different products and product classes. Economic downturns or shifts in market demand could reduce activity on the platform.
Mitigation Strategy: Coinbase has actively diversified its revenue streams by servicing a wide range of product needs as a platform. As illustrated in the chart below showing the diverse revenue streams for Coinbase in Financial Year 2024, a platform approach ensures Coinbase’s revenues are protected during market volatility. Additionally, Coinbase’s large user base – approximately 120 million verified users as of July 2025 – and its role as a trusted on-ramp for institutional capital will continue to help stabilise its position during market downturns. The company is also well positioned to attract institutional inflows, and this will further underscore its resilience.
Regulatory Risks
The regulatory environment for cryptocurrencies remains fragmented and uncertain, particularly in the U.S., where evolving policies could impose new compliance burdens or restrict certain operations. For example, potential changes in securities classification or stablecoin regulation could impact Coinbase’s product offerings. Globally, varying regulatory approaches could also affect its international operations.
Mitigation Strategy: Coinbase has established itself as a leader in regulatory compliance. As a publicly traded company, it adheres to strict SEC regulations and reporting requirements, enhancing its credibility and transparency. The company has published a Digital Asset Policy Proposal to advocate for clear and workable regulations in the crypto space. CEO Brian Armstrong has emphasised that Coinbase’s compliance program is a core strength, with significant investments in legal and regulatory expertise. Coinbase’s proactive engagement with regulators and its compliance-first approach reduce its exposure to adverse policy shifts, positioning it to adapt to new requirements effectively.
Competitive Threats
Coinbase faces intensifying competition from both traditional financial institutions entering the crypto space and other digital asset exchanges who may undercut Coinbase through lower fees or perhaps offer more innovative products. Emerging platforms, particularly those leveraging decentralised finance (DeFi), could also erode Coinbase’s market share by providing alternative trading venues.
Mitigation Strategy: Coinbase maintains a competitive edge through its strong brand recognition, extensive product suite, and international expansion. The company’s focus on innovation – such as new financial products and services – helps it stay ahead of rivals. With over 100 million verified users and a presence in multiple markets, Coinbase benefits from significant scale and customer loyalty. Its reputation as a trusted platform, particularly among institutional clients, further solidifies its position. While competition is fierce, Coinbase’s scale, trust, and product breadth make it difficult for rivals to displace.
Operational and Technology Risks
As a digital asset platform, Coinbase is exposed to operational risks such as system outages, cyber attacks, and technology failures. The crypto industry is a prime target for cyber threats, with hackers becoming increasingly sophisticated. A major security breach or prolonged service disruption could damage Coinbase’s reputation and result in significant financial losses.
Mitigation Strategy: Coinbase has an exemplary security track record, with no major breaches affecting customer funds in its history. The company invests heavily in cybersecurity, including insuring digital assets held in its hot wallets and conducting regular audits. Its technology stack is built for resilience, supporting real-time, 24/7 global operations. Coinbase’s transparency as a publicly traded entity also enhances accountability, with audited financials ensuring robust operational oversight. While cyber threats are ever-present, Coinbase’s security-first culture and technological investments provide strong protection.
Regulatory Tailwinds
The United States, as the world’s financial capital, sets the regulatory benchmark for global markets. As U.S. policies increasingly favour digital assets, Coinbase stands to benefit significantly, given its robust compliance framework and leadership in institutional adoption.
Coinbase operates under the rigorous oversight of the New York State Department of Financial Services and holds 43 money transmitter licenses, positioning it as one of the most compliant digital asset exchanges worldwide.
Key Regulatory Catalysts
GENIUS Act (2025): Signed into law on July 18, 2025, this act regulates stablecoins with requirements for liquid reserves and transparency. Coinbase’s compliance expertise aligns well with these rules, though stricter oversight could raise operating costs.
Clarity Act: Passed by the U.S. House in 2025 and awaiting Senate approval, this act would grant the CFTC jurisdiction over digital commodities. With Coinbase’s significant share of the U.S. crypto derivatives market, clearer rules could accelerate its growth in this high-margin segment.
Banking Integration: Recent guidance from the OCC (Interpretive Letter 1184), FDIC, and Federal Reserve permits banks to offer crypto custody and execution services. Coinbase is capitalising on this shift, supporting 200 financial institutions with integration services as of June 2025, per CEO Brian Armstrong.
Opportunities
These tailwinds position Coinbase as the go-to platform for institutions seeking compliant crypto exposure. However, success hinges on delivering a seamless bridge between traditional banking and digital assets – a capability Coinbase is actively refining. In July 2025, Coinbase also announced a partnership with JP Morgan to allow Chase bank customers to directly link Chase accounts to Coinbase, use their credit cards on Coinbase, and to redeem rewards points for USDC.
Stablecoins As A Key Growth Driver for Coinbase
Stablecoins have become a cornerstone of the cryptocurrency ecosystem, blending the efficiency of digital assets – fast, low-cost transactions – with the stability of fiat currencies. Coinbase, as a leading distributor of stablecoins, stands to benefit significantly from this trend, particularly through its partnership with Circle, the issuer of USD Coin (USDC).
The Circle Agreement
Coinbase’s partnership with Circle, formalised through the Circle Agreement, positions it as a major player in the stablecoin market. USDC, the second-largest stablecoin, commands a 24% share of the $253 billion stablecoin market (as of 2025). Per Coinbase’s public filings:
Coinbase earns 100% of the interest on USDC reserves held on its platform.
Coinbase receives 50% of the interest on USDC held off-platform.
These reserves, fully backed 1:1 by cash and U.S. Treasury securities, generate steady income as USDC adoption grows. In 2024, Coinbase doubled down on this strategy by offering on-chain rewards to customers holding USDC in Coinbase Wallet, boosting user engagement and reinforcing its commitment to the stablecoin’s longevity. Circle’s recent IPO further enhances this partnership, cementing its regulatory credibility and creating a competitive moat.
Market Opportunity
Stablecoins have the potential to reshape global payments, particularly for cross-border transactions where traditional systems like SWIFT – processing over $150 trillion annually – are slow and costly. Potentially capturing 1% of SWIFT’s market ($1.5 trillion) represents a transformative opportunity. Stablecoins’ advantages – speed, transparency, and lower fees – position them as a viable alternative, though scaling to this level will require time and infrastructure development.
Why Coinbase Benefits
Coinbase is well-equipped to ride this wave:
Regulatory Trust: Its compliance focus and Circle’s transparency make them a preferred choice for institutions and regulators.
User Adoption: Features like USDC rewards and seamless fiat-to-crypto conversions drive retail and institutional uptake.
Revenue Leverage: The interest-sharing model scales with USDC’s growth, providing a high-margin income stream.
Risks to Watch
However, challenges remain:
Competition: Tether (USDT), the market leader, and emerging stablecoins could erode USDC’s share.
Regulation: Evolving stablecoin rules could impose costs or restrictions.
Adoption Pace: Displacing entrenched systems like SWIFT requires overcoming inertia and building trust at scale.
Where We Are Now…
We’re marking today as a starting point, and future performance of this Coinbase allocation will be measured from today.
Right now, we view Coinbase as an early-stage growth company as evidenced by the company's fluctuating net income amid growing total revenue.
Verified users on Coinbase grew 2.8x to 120 million verified users from 2020 to 2025. However the total addressable market for Coinbase is the 4.8 billion global smartphone users.
The total market cap of the crypto industry is currently around $4 trillion. As a whole, the total addressable market for the digital assets industry is the $114 trillion global economy – noting the wide applications and use-cases for digital assets.
In 2025, Coinbase was the custodian of $245 billion in customer assets, representing 6% of all crypto assets.
Referencing the GENIUS Act stablecoin legislation, Coinbase will continue to accelerate market share and revenue from stablecoins through Coinbase’s partnership with Circle.
Wrapping Up
The current environment surrounding the digital assets industry is a perfect opportunity for Coinbase to outperform. Regulatory tailwinds such as the Clarity Act, various U.S. based banking integrations, and the GENIUS Act, all mark a sentiment shift among regulators which will attract additional retail and institutional investors to highly transparent and fully compliant U.S. based digital assets exchanges — and Coinbase is primed to absorb that entire demand. As investors, noting that Coinbase is an early-stage growth company, there remains a high margin of safety that results from the future potential for Coinbase. An allocation to Coinbase is therefore the most effective risk-adjusted approach for exposure to the digital assets industry.
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