ETFs
3 little-known facts about why Ethereum ETFs could be mega-bullish for Coinbase
It’s been quite a year for Global Coinbase (NASDAQ:COIN). Crypto is back in a bull market, the Securities and Exchange Commission (SEC) approved location Bitcoin (CRYPTO:BTC) exchange-traded funds (ETFs) and Coinbase reported their first profitable quarter in more than two years. As a result, its stock is up more than 275% over the past year.
And as is often the case in bull markets, the good news just keeps coming. Rumors are circulating that the SEC will greenlight a spot Ethereum (CRYPTO: ETH) Soon an ETF. Not only will Coinbase be the custodian for some of these ETFs, but pending approval will also create a domino effect of benefits for the company as interest in Ethereum increases.
Here are three little-known facts about why the approval of the Ethereum ETF will provide a major boost to the company.
Image source: Getty Images.
1. It will increase the volume on the platform
When Bitcoin spot ETFs were approved in January, many thought they would deal a major blow to Coinbase. Since investors can now gain exposure to cryptocurrency through ETF trading on exchanges, why would they use Coinbase?
While the concerns were valid at the time, we now see that the approval of ETFs has generated massive trading volumes on Coinbase. The exchange saw volume on its platform increase by 300%.
You can probably see where this is going. Ethereum is the second most traded cryptocurrency on Coinbase. And since the exchange generates revenue from trading fees, if a similar result occurs after an Ethereum ETF is approved, then Coinbase will reap serious profits. The more trades, the more money it will bring.
2. Staking should be boosted
One of Coinbase’s most popular products is its staking service. When purchasing Ethereum on its platform, the company makes it easy for users to stake it and earn passive income with just a few clicks. Providing this service requires a 25% cut of staking rewards paid to users.
If Ethereum’s price follows a similar trajectory to Bitcoin’s after gaining approval for its spot ETF, then this 25% reduction will increase significantly. Imagine the difference this will make when you consider that Coinbase manages billions of dollars of staked Ethereum.
We can see the impact that rising Ethereum prices could have on Coinbase’s bottom line just by looking at last quarter’s earnings report. From Q4 2023 to Q1 2024, Coinbase saw its Blockchain Rewards (staking) revenue increase 59% while the price of Ethereum jumped 60%.
Although it’s only a quarter, the increase in staking revenue almost directly corresponds to the increase in Ethereum’s value. If the crypto’s value climbs 50% like Bitcoin’s within three months of ETF spot approval, Coinbase’s Blockchain Reward segment is expected to see a similar increase or jump of around $75 million .
The story continues
3. The first company built on Ethereum
The final benefit that the approval of Ethereum spot ETFs for Coinbase will bring is slightly abstract, but it could be the most lucrative. The company offers two main products based solely on Ethereum: Base and USDC (CRYPTO:USDC).
Launched in August 2023, Base is Coinbase’s own blockchain. Technical questions are a discussion for another day, but what’s important is that Base is compatible with Ethereum, and for every transaction made on Base, the company receives a cut.
Since the beginning of March, Base has generated nearly $35 million in profits as users flocked to the blockchain following Ethereum’s Dencun upgrade, which reduced fees on layer 2 blockchains like Base.
If the business stays on its current trajectory, Base could produce about $200 million annually. That’s not bad considering Coinbase reported a net profit of $95 million for all of 2023.
Then there is USDC. Coinbase leverages this stablecoin in several ways to generate income, including interest income from reserves; transaction and conversion fees; childcare services; and thanks to its partnership with Circle, the creator of the stablecoin. In the first quarter of 2024, Coinbase generated approximately $197 million in USDC revenue.
Since both USDC and Base are based on Ethereum, the approval of an ETF could produce serious benefits. There is no easy way to quantify it, but if the Bitcoin ETF approval triggered increased activity on Bitcoin, then it is plausible to assume that an ETF approval for Ethereum will lead to a surge in activity. interest and activity for this crypto, inevitably impacting that of Coinbase. Services based on Ethereum.
The essential
The most obvious benefit to Coinbase and the approval of Ethereum spot ETFs is that it will be the custodian for five of the eight ETF applicants. This will produce additional revenue, but a deeper understanding of Coinbase’s Ethereum-centric business model shows that simply being a custodian of the ETFs will pale in comparison to the knock-on effect on its revenue streams. .
Simply put, what’s good for Ethereum is good for Coinbase. Better yet, we are only in the early stages of greater acceptance and interest in Ethereum and its unique role in the digital economy.
It’s unclear how much of a catalyst this will be for Coinbase stock, but rest assured, it will make the company much more valuable than it is today.
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RJ Fulton has positions in Bitcoin, Coinbase Global and Ethereum. The Motley Fool holds positions and recommends Bitcoin, Coinbase Global, and Ethereum. The Mad Motley has a disclosure policy.
3 little-known facts about why Ethereum ETFs could be mega-bullish for Coinbase was originally published by The Motley Fool