On Friday, Coinbase witnessed a surge in its shares, approaching a two-year high, following the crypto exchange’s announcement of its first quarterly profit since 2021. The positive financial outcome was attributed to a significant increase in trading volume leading up to the approval of spot bitcoin exchange-traded funds (ETFs). Experiencing a 14% rally, the stock reached $189.28, contributing over $5 billion to the company’s market value.
Investor interest in popular crypto tokens such as bitcoin rose since the second half of last year as fears over a global economic slowdown eased and newer entrants lured retail investors into the sector. A resurgence in demand lifted cryptocurrency prices and drove transaction fees for Coinbase to rise 57% in the third quarter to $529.3 million from a year earlier. The increase primarily reflected an influx of investor money from traditional fund managers like BlackRock, Fidelity, Invesco, and WisdomTree, who will deposit their assets with Coinbase and use the platform to trade them.
Revenue also benefited from the addition of the bitcoin ETFs, which came into force in January. The company served as the custodian partner for 8 of the 11 approved ETFs, adding to its business from institutional investors. Coinbase’s resurgence has also bolstered the business’s margins. Operating expenses fell 3% in the quarter to $270.7 million from a year ago, while total income increased by 20% to $444.6 million.
Despite the growth, analysts remain cautious about the business’s prospects. Some analysts fear that the ETFs could cannibalize the business’s trading fees by encouraging users to buy exposure to bitcoin through low-cost ETFs rather than directly on the Coinbase platform. But a Coinbase spokesperson told CNBC that the ETFs will boost the entire crypto ecosystem, and their inclusion in regulated indices should attract more institutions to the industry, which will help trading volumes at Coinbase.
In addition, Coinbase’s revenue stream will likely benefit from the upcoming launch of several stablecoins, which are expected to attract new investor capital and boost demand for the platform. Stablecoins are dollar-pegged alternatives to the more volatile cryptocurrencies such as bitcoin that can help reduce price volatility and improve liquidity. The Coinbase-backed Circle stablecoin has gained the most traction, with more than half its market share coming from new investors.
Other Bitcoin-exposed stocks were lower, led by semiconductor test equipment maker Aehr Test Systems Inc (AEHR), which dropped 18% after it cut its full-year earnings forecast. Other miners, such as Marathon Digital Holdings Inc. and Riot Platforms, were also lower. Shares of e-commerce giant Etsy Inc. slipped 2% after Goldman Sachs upgraded the stock to neutral from underweight, saying the firm’s estimates fairly reflected near-term expectations. The investment bank upgraded the stock’s price target to $80, up from $60. The company will report fourth-quarter earnings on Thursday.