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Analysis: Coinbase posts spectacular 2021 results, with one oddity


Cryptocurrency exchange Coinbase posted massive results for 2021. Net revenue for the year was $7.3 billion (up 544% on 2020) and net income of $3.6 billion (up more than 1000%). In the fourth quarter transacting users were 11.4 million compared to 2.8 million in 2020. 

One oddity is a lack of increased market share in assets under custody (AUC) which Coinbase refers to as assets on platform. The figure rose by 208%, but the growth in market capitalization of cryptocurrency was up 196%, implying little market share gain. That’s despite an increase in its market share of transactions.

We wondered whether the tepid asset growth was because more of it was institutional and self custodied, but this doesn’t appear to be the case. Yes, there was a far higher proportion of institutional trading volume. In 2021, institutions made up 68% of Coinbase’s transaction volume compared to 37.8% in 2020. However, when it came to assets, in 2020, half was institutional, which dropped insignificantly to 49.2% in 2021.

The only explanation we came up with for the tepid asset growth despite the volumes is that more crypto investors are using self custody, moving assets onto the platform for trading. We’re not convinced that’s the entire answer, and it’s a possible negative indicator. There’s also a sign of a maturing and more competitive market with average transaction revenue per user rising 42% even though underlying crypto prices are up 196%.

Unsurprisingly, institutional trading is a lot less profitable for Coinbase than retail trading. So while institutions made up 68% of trading volumes, they accounted for just 5% of Coinbase’s transaction revenues of $6.837 billion. This implies that net revenues from institutions are little more than 0.03% of volumes. In contrast, the figure for retail is just over 1.2%.

Coinbase expects a reduced Q1 trading volume and results due to declines in the cryptocurrency sector.

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