The crypto exchange raises estimates for Q3 2024 amid stablecoin market recovery and regulatory optimism
The cryptocurrency landscape has undergone a significant transformation following a challenging period marked by declining stablecoin market caps and the collapse of key players. From March 2022 to October 2023, the total stablecoin market cap plummeted from $164 billion to $120 billion, driven by aggressive rate hikes and the broader economic downturn. However, by the end of the third quarter of 2024, the market cap had rebounded to $169 billion, surpassing its previous peak. This resurgence signals a shift in sentiment, supported by traditional finance (TradFi) companies entering the blockchain space, and an influx of new money.
Regulatory Momentum and Market Optimism
Several factors are driving this revival, including the implementation of the Markets in Crypto-Assets (MiCA) regulatory framework in the European Union and increasing support for cryptocurrency regulation in the United States. U.S. Vice President Kamala Harris has voiced her backing for clearer regulatory frameworks, which could boost confidence in the industry. Additionally, the eventual passage of a stablecoin bill in the U.S. and potential economic stimulus from China could further accelerate blockchain adoption and cryptocurrency trading, particularly benefiting Coinbase, a key player in the crypto exchange market.
Upgraded Q3 2024 Financial Outlook
Amid this positive backdrop, Coinbase has revised its financial estimates for the third quarter of 2024. The company now anticipates revenue of $1.29 billion, adjusted EBITDA of $505 million, and earnings per share (EPS) of $0.40. This marks an improvement from previous forecasts of $1.25 billion in revenue, $490 million in adjusted EBITDA, and $0.36 in EPS. The upward revision is largely driven by higher-than-expected trading revenue, although overall trading volume in Q3 remained stagnant.
Despite this, Coinbase’s subscription and services revenue is expected to grow by 65% year-over-year, although it may see an 8% quarter-over-quarter decline due to lower blockchain revenue and interest income.
Trading Volume and Fee Trends
While the Q3 2024 spot trading volume is forecasted to drop by 23% compared to the previous quarter, it is projected to rise by a notable 130% year-over-year, reaching $175 billion. The U.S. election cycle and lack of catalysts negatively impacted Bitcoin trading, but international trading volumes provided a silver lining, increasing by 61% quarter-over-quarter to $116 billion.
Looking ahead, regulatory clarity from the U.S. and potential stimulus from China could propel Bitcoin prices to new highs in the fourth quarter of 2024. Meanwhile, Coinbase’s retail fee rate is expected to tick up slightly to 1.85% in Q3 2024, compared to 1.80% in the second quarter. The company benefits from its booking of derivative revenue into retail transactions, further supporting its retail fee rates.
Stablecoin Market Dynamics: USDC vs. USDT
The average market cap of USD Coin (USDC) rose to $34.5 billion in Q3 2024, but the gap between USDC and Tether (USDT) continues to widen. A key catalyst for USDC’s future growth could be the MiCA regulatory framework, as several exchanges, including OKX and Uphold, have recently de-listed USDT. Coinbase is also expected to de-list USDT soon, reflecting a broader trend as the U.S. Congress pushes for stablecoin legislation.
Adoption of Base Layer 2 Solution
Coinbase’s Layer 2 solution, Base, is gaining significant traction. In Q3 2024, the platform saw a 140% increase in weekly active users and a 56% rise in total transactions, reaching 6.5 million and 380 million, respectively. While Base only generated $7 million in revenue during the quarter, its growing user base and transaction volume highlight its potential as a key contributor to Coinbase’s future revenues.
Investment Thesis: A Leader in Crypto Innovation
Coinbase is well-positioned to benefit from the mass adoption of digital assets. The company’s role as an enabler of blockchain innovation, combined with its deep liquidity pool, strong network effects, and trusted regulatory-compliant platform, positions it as a leader in the cryptoeconomy. The launch of new crypto products, continued international expansion, and better-than-expected revenue and earnings growth could further enhance its position in the market.
Looking Ahead
With new catalysts on the horizon, including a potential U.S. stablecoin bill and the continued adoption of its Base platform, Coinbase is poised to play a central role in the evolving cryptocurrency ecosystem. The exchange’s commitment to innovation, regulatory clarity, and expanding its international presence will likely drive future growth, making it a key player to watch in the crypto space.
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