Coinbase: An alternative way to invest in cryptocurrencies.

Coinbase is a U.S.-based company that makes it easy for people and institutions to buy, sell, and store cryptocurrencies like Bitcoin and Ethereum. Since going public in 2021, it has grown beyond just a trading app into a broader platform offering subscriptions, interest on digital dollars, and secure storage for large investors. With crypto slowly becoming more mainstream and Coinbase expanding globally, the company is aiming to build a more stable business that can grow over time. But with risks like heavy competition, regulation, and market volatility, is Coinbase a smart long-term investment?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that I do not own any shares in Coinbase at the time of writing this analysis.I also don’t actively use Coinbase and currently hold only a small amount of cryptocurrency. The crypto I do hold is with Nexo, which pays daily interest that compounds over time. You can either buy crypto directly or transfer existing holdings to Nexo to benefit from daily compounding interest - read more here. If you would like to copy or view my portfolio, you can find instructions on how to do so here. Nevertheless, as always, I will keep this analysis unbiased. If you want to purchase shares or fractional shares of Coinbase, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Coinbase is a U.S.-based cryptocurrency platform founded in 2012 that allows retail users, institutions, and developers to interact with the crypto economy. Its primary business is facilitating the buying, selling, trading, and storage of digital assets through a secure and regulated platform. While most of its revenue historically came from transaction fees on crypto trades, Coinbase has been diversifying into more stable income streams. These include staking rewards, custodial services, interest income from stablecoin reserves - particularly USDC - and its consumer subscription product, Coinbase One. This shift is helping reduce the company's reliance on the highly volatile trading revenue tied to crypto prices and volumes. Coinbase offers a wide range of products tailored to different types of customers. For everyday users, it provides a simple app to buy and sell cryptocurrencies like Bitcoin and Ethereum. For more experienced traders, there’s an advanced interface with additional tools and features. Large institutions, such as investment firms and banks, can securely trade and store crypto using Coinbase Prime, a platform designed specifically for professional clients. Coinbase also provides a digital wallet that gives users full control over their crypto assets - meaning they alone hold the keys. This wallet allows users to explore decentralized apps outside the main Coinbase platform. By offering all these services under one roof, Coinbase supports users at every stage of their crypto journey - whether they’re just getting started or trading professionally. A key competitive advantage for Coinbase is its strong emphasis on regulatory compliance and its reputation as a trusted platform. As the first major U.S. crypto exchange to go public, it operates under a range of licenses and SEC-regulated entities. In a space often marred by uncertainty and risk, Coinbase’s approach has made it a preferred partner for institutions, including issuers of the recently approved spot Bitcoin and Ethereum ETFs. Its compliance-first strategy stands out even more in the wake of high-profile failures among unregulated competitors. Coinbase’s brand is widely recognized for its security, ease of use, and educational tools that help users understand crypto. With over 100 million registered users and millions of active monthly participants, the company benefits from strong network effects. Many first-time crypto users begin their journey with Coinbase, and the company’s broad product offering encourages them to stay. While switching costs in crypto trading are generally low, Coinbase’s integrated ecosystem, clean design, and track record of security help build and maintain customer loyalty. Altogether, Coinbase’s moat is built on trust, regulatory readiness, and a platform that scales across consumer, institutional, and infrastructure needs in a fragmented and fast-changing industry.

Management

Brian Armstrong serves as the CEO and Chairman of the Board at Coinbase, a company he co-founded in 2012. A software engineer by training, Brian Armstrong was inspired to start Coinbase after encountering firsthand the inefficiencies of global money transfers while working at Airbnb. Before that, he held roles at IBM and Deloitte and founded UniversityTutor.com, an online tutoring platform that he ran for nearly a decade. He holds a dual bachelor’s degree in Economics and Computer Science, as well as a master’s degree in Computer Science, all from Rice University. In addition to leading Coinbase, Brian Armstrong has pursued other entrepreneurial ventures in science and research. In 2020, he founded ResearchHub Technologies, a platform designed to accelerate the pace of scientific research, where he serves as CEO. In 2021, he co-founded NewLimit, a biotech company focused on epigenetic reprogramming with the goal of extending human healthspan. His involvement in these ventures reflects a broader interest in solving long-term, high-impact problems through technology. At Coinbase, Brian Armstrong is known for his strong focus on company culture and leadership principles. He authored “The Coinbase Culture Doc,” a detailed outline of the values he wants to instill across the organization. These include hiring top talent, acting like owners, prioritizing customer needs, fostering innovation, maintaining candid but kind communication, and functioning as a championship team. While some of these principles are common in the tech industry, Brian Armstrong’s emphasis on clarity, execution, and accountability sets a distinct tone for how Coinbase operates. He has expressed a preference for a mission-focused and high-performance environment, one that attracts individuals who are deeply committed to building the future of crypto. Brian Armstrong is also a vocal advocate for regulatory clarity in the crypto space and has positioned Coinbase as a compliance-first platform, differentiating it from many less-regulated competitors. He believes that working constructively with regulators is essential for crypto’s long-term legitimacy and growth. His approach has helped Coinbase secure institutional trust and play a leading role in shaping the industry’s regulatory landscape. In terms of leadership perception, Brian Armstrong ranks in the top 30% of CEOs of similarly sized companies on Comparably. Employees highlight his long-term vision and technical expertise as key strengths. I believe Brian Armstrong’s combination of technical depth, founder mentality, and focus on disciplined execution makes him well-suited to lead Coinbase through the next phase of growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Coinbase made their IPO in April 2021, so we only have data available from that point onward. The numbers reflect the volatility you can expect when investing in a company operating in the cryptocurrency space. Management has stated that they are focused on improving operational efficiency, allocating capital effectively, and maintaining a disciplined approach to costs and investments - all of which should support improved ROIC over time. One example is Coinbase’s efficient marketing program, which delivers a strong return on customer acquisition. The company reports that it typically recoups the cost of acquiring a new customer within a year. As Coinbase continues to diversify its revenue away from transaction fees - toward more recurring streams like subscriptions, stablecoin interest, and staking rewards - ROIC should become more stable and predictable in the future.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. We only have four years of data, as Coinbase made its IPO in 2021. Equity remained relatively stable during the first three years post-IPO but increased significantly in 2024. This sharp rise was driven by strong revenue growth, improved cost efficiency, and a more favorable market environment for the cryptocurrency sector. Given Coinbase’s exposure to the crypto industry, it’s reasonable to expect that equity may remain volatile in the years ahead.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. We only have four years of data, as Coinbase did its IPO in 2021. Free cash flow has been mixed over this period, including one year of negative free cash flow. The negative result came during the 2022 crypto bear market, highlighting the company’s sensitivity to broader market conditions. While Coinbase is working to diversify away from relying solely on transaction fees, it is likely that periods of negative free cash flow may continue during down cycles in the crypto space. Management has stated that they plan to allocate free cash flow toward acquisitions, investments in additional crypto assets, and opportunistically managing the capital structure through share or debt repurchases - all of which can benefit long-term shareholders. In years when free cash flow is positive, the levered free cash flow margin has been exceptionally strong, which is encouraging. It suggests that Coinbase has a highly profitable model when market conditions are supportive. That said, free cash flow yield has been quite volatile over the past four years. As of the end of 2024, the yield stood at 4,1%, which indicates that the stock is not trading at a particularly cheap valuation. However, we will return to the topic of valuation later in the analysis.

Debt

Another important aspect to investigate is the level of debt—specifically, whether a business has a manageable debt load that can be paid off within a period of three years. We assess this by dividing total long-term debt by earnings. After calculating Coinbase’s debt levels, I found that the company has 1,78 years’ worth of earnings in debt. This is well below the three-year threshold, so I don’t view debt as a concern when considering an investment in Coinbase. Management has also stated that they intend to use a portion of free cash flow to reduce debt, which further supports the view that debt should not be an issue going forward.

Risks

Competition is a significant risk for Coinbase due to the growing number and diversity of players entering the crypto space. The company faces pressure on multiple fronts—from crypto-native platforms to traditional financial institutions. Globally, competitors like Binance, OKX, and Bybit lead in trading volume and offer broader product sets, including a wider range of altcoins and derivatives. Many of these offshore exchanges operate with minimal regulatory oversight, allowing them to move faster, offer more aggressive pricing, and list assets that Coinbase cannot, due to U.S. compliance constraints. Even within the United States, Coinbase is under increasing pressure. Fintech platforms such as Robinhood, PayPal, and Cash App offer commission-free or low-cost crypto trading, which appeals to retail investors seeking ease of use and lower fees. In 2024, Robinhood experienced a surge in crypto trading revenue, highlighting that Coinbase does not hold a monopoly even in its strongest market. As competition intensifies, Coinbase may be forced to lower its relatively high retail trading fees, which could compress margins unless offset by higher volumes or revenue growth from other business lines. On the institutional side, Coinbase’s leadership in crypto custody is also being challenged. Following the repeal of the SEC’s SAB 121 rule, large custodians like Fidelity and Bank of New York Mellon have announced plans to expand into crypto. Traditional exchanges such as CME and ICE could also enter indirectly through ETF-related infrastructure or partnerships. If these established players gain regulatory approval and institutional trust, Coinbase’s dominance in this segment could erode. What makes competition particularly challenging for Coinbase is that many of its rivals benefit from structural advantages. Some competitors face lower regulatory burdens, have broader international reach, or possess larger balance sheets. In some cases, crypto operations are just one piece of a much larger financial ecosystem, enabling these firms to operate at lower margins or even at a loss to gain market share. Others, particularly offshore platforms, can move quickly and launch new products without the constraints Coinbase faces as a regulated U.S. entity.

Cryptocurrency market volatility is a key risk for Coinbase because the company’s business is closely tied to the performance of the broader crypto market. A large share of Coinbase’s revenue comes from transaction fees, which fluctuate with trading activity. When crypto prices are rising and investor sentiment is strong - as seen during bull markets - users trade more frequently, driving higher revenue. However, in bearish or uncertain periods, trading activity often drops off sharply, which has a direct impact on Coinbase’s top line. This pattern was especially clear in 2022, when aggressive interest rate hikes and tighter global liquidity led to a broad selloff in risk assets, including cryptocurrencies. As prices fell, both retail and institutional users reduced trading activity, and Coinbase’s revenue declined significantly. While macroeconomic factors like interest rates, inflation, and economic growth don’t target crypto directly, they strongly influence investor behavior and risk appetite, making them powerful but indirect drivers of Coinbase’s financial performance. Beyond macro factors, the crypto market also follows its own internal cycles—most notably the Bitcoin halving cycle, which has historically triggered bull markets every four years. These cycles create boom-and-bust dynamics: periods of rapid growth followed by contraction. Coinbase tends to perform very well during bull phases, such as in 2017 and 2021, but faces headwinds during downturns like 2018 and 2022. This cyclicality introduces significant earnings volatility, making it difficult for investors to forecast long-term performance and challenging for management to plan and allocate capital with confidence. While Coinbase is actively working to reduce its dependence on trading fees - by expanding subscription and services revenue streams like staking, stablecoin interest, and custodial fees - its core business remains highly sensitive to crypto asset prices and trading volumes. Adding to this is the inherent unpredictability of the crypto market. Asset prices can swing sharply due to regulatory developments, global events, negative press, social media speculation, or sudden shifts in sentiment. Crashes, technological vulnerabilities, or enforcement actions against other industry players can quickly erode confidence and suppress activity on the platform.

Regulatory uncertainty is one of the most significant risks facing Coinbase, given the company’s position as a publicly listed and compliance-focused crypto exchange operating in a rapidly evolving industry. Coinbase must navigate a complex web of U.S. federal, state, and international regulations that cover everything from securities and commodities trading to anti-money laundering, data protection, consumer protection, and tax compliance. Many of these laws were written long before the emergence of cryptocurrencies and blockchain technologies, meaning they often fail to account for the unique characteristics of the cryptoeconomy. As a result, Coinbase is frequently required to interpret whether and how certain rules apply - interpretations that may later be challenged by regulators. This regulatory landscape is not only fragmented across jurisdictions but also subject to constant change. U.S. federal and state agencies continue to propose new rules or reinterpret existing ones, directly affecting Coinbase’s ability to offer certain products and services. At the same time, international regulators are ramping up oversight. For example, the European Union’s MiCA framework introduces new licensing and compliance obligations for crypto service providers, adding to the company's regulatory burden across borders. Navigating these shifting regimes can be both costly and time-consuming, and failure to comply could result in fines, product suspensions, license revocations, or even bans from specific markets. Many of Coinbase’s newer and more innovative offerings - such as staking, lending, token management, and smart contract-based services - operate in legal gray areas. Regulatory guidance around these products is often vague, inconsistent, or still under development. The company has already received inquiries regarding the legality of some services, and further scrutiny is likely. Meanwhile, new compliance obligations, such as the Travel Rule or proposed anti-money laundering standards for stablecoins, may increase operational complexity and reduce the user experience. Adding to this challenge is the post-crisis regulatory momentum following the high-profile failures of several crypto firms in 2022, including FTX and Celsius. These events have intensified pressure on lawmakers and regulators to impose stricter oversight on the crypto industry, and by extension, on compliant platforms like Coinbase.

Reasons to invest

Positive trends in the cryptocurrency industry provide a strong long-term tailwind for Coinbase, positioning the company to benefit from what may be a generational shift in how value is transferred, stored, and accessed across the global financial system. As crypto adoption continues to expand beyond speculation into real-world use cases - such as payments, decentralized applications, and tokenized assets - Coinbase stands to gain from its role as one of the most trusted and established platforms in the space. Crypto is increasingly moving from a niche asset class to a foundational layer of economic infrastructure. Just as the internet transformed business in the early 2000s, many believe blockchain will underpin a significant portion of global GDP by the end of this decade. Coinbase’s leadership team estimates that only 0,5% of global GDP currently runs on crypto rails, but this could grow meaningfully as more institutions, developers, and consumers engage with the onchain economy. This trend represents a massive addressable market expansion for Coinbase, which aims to be the go-to infrastructure provider for companies integrating crypto. One area where this shift is already taking place is in stablecoin-based payments. In 2024 alone, stablecoin transfers surpassed $27,6 trillion—overtaking the combined transaction volume of Visa and Mastercard. As these digital dollars gain traction for real-world commerce, remittances, and peer-to-peer payments, Coinbase is integrating stablecoins across its products and forming partnerships with global players to drive adoption. As crypto becomes more than just a place to trade digital coins, new use cases are beginning to emerge—such as turning real-world assets like real estate or loans into digital tokens, or building apps that run on blockchain technology. Coinbase is investing in tools that help make these innovations accessible to everyday users and businesses. Over time, Coinbase wants to be the main place people go—not just to buy and sell crypto, but also to make payments, earn rewards, or explore crypto-powered apps. In that way, Coinbase could evolve into a one-stop financial app that combines the features of a bank, a brokerage, and a payment platform all in one.

Subscription and services is one of the most promising parts of Coinbase’s business, offering a more stable and predictable source of income compared to the highly volatile nature of trading fees. In 2024, this segment grew by 64% year over year, reaching $2,3 billion - more than four times its size during the 2021 bull market. This growth marks a key step in Coinbase’s evolution into a more resilient, all-weather company. The main contributors to this revenue stream are blockchain rewards (staking), stablecoin interest income (primarily from USDC), custody fees, and the company’s consumer subscription product, Coinbase One. Coinbase makes money in several ways: it takes a small cut when users earn rewards by helping to run certain crypto networks (staking), earns interest from digital dollars (like USDC) held on the platform, and charges institutions for securely storing large crypto holdings. Coinbase One brings in subscription revenue by offering users benefits like zero trading fees and boosted rewards. These services not only diversify Coinbase’s revenue but also deepen customer engagement and create recurring income regardless of market conditions. Coinbase One, in particular, has gained strong traction, surpassing 600,000 paid subscribers by the end of 2024 - a 50% increase since the start of the year. The recent launch of a higher-tier premium membership shows there’s still room to expand monetization. Staking and custody have also grown steadily, supported by rising crypto prices and increased demand from users seeking secure, regulated platforms to manage their assets. Altogether, these services strengthen Coinbase’s role as a trusted infrastructure provider and reinforce its long-term potential beyond just crypto trading.

International expansion is a key growth driver for Coinbase. While the U.S. remains its largest market, the company is actively expanding into high-potential regions abroad—and the results are beginning to show. In the fourth quarter of 2024, 19% of Coinbase’s revenue came from outside the U.S., up from 16% the year before. This growing contribution reflects the success of a repeatable international playbook: securing local licenses, integrating regional payment methods, tailoring the user experience, and investing in targeted marketing. Over the past two years, Coinbase has entered markets like Singapore, Canada, Australia, and Brazil - regions with strong crypto adoption - and has already achieved positive contribution margins in each one. In other words, revenue in those countries now exceeds direct operating costs, validating the company’s global strategy. In Brazil, for instance, Coinbase became the number one crypto app on the App Store, signaling strong early momentum. The same approach is now being applied to additional markets as Coinbase gains confidence in its ability to scale internationally. More than just acquiring users, Coinbase is localizing its full product suite - including subscription services like Coinbase One and offerings like staking and custody - to drive deeper engagement and grow recurring revenue. This geographic diversification reduces reliance on the U.S. market and positions Coinbase to tap into emerging regions where crypto adoption is accelerating, often driven by economic instability, inflation, or limited access to traditional financial services.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 9,48, which is from the year 2024. I have selected a projected future EPS growth rate of 10%. While Finbox expects EPS to grow by just 2,5% over the next five years—with several years of negative growth included in that estimate - I’m more optimistic. Additionally, I have selected a projected future P/E ratio of 20, which is double the growth rate. This decision is based on Coinnbase's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $121,56. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Coinbase at a price of $60,78 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 2.557, and capital expenditures were 0. The tax provision was 363. We have 250,4 outstanding shares. Hence, the calculation will be as follows: (2.557 + 363) / 250,4 x 10 = $116,61 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Coinbase's free cash flow per share at $10,21 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is $128,24.

Conclusion

I believe that Coinbase is an interesting company with strong management. The company has a moat through its emphasis on regulatory compliance and its reputation as a trusted platform. ROIC has been volatile over the four years since the IPO, but management is focused on improving it going forward. The same applies to free cash flow - Coinbase has experienced a year with negative free cash flow, but as it diversifies away from transaction fees, its cash flow should become more stable over time, even if occasional down years persist. Competition is a key risk for Coinbase, as it faces pressure from both crypto-native platforms and traditional financial institutions - many of which can move faster, charge lower fees, or operate under fewer regulatory constraints. Cryptocurrency market volatility is another major risk, since Coinbase’s revenue is heavily tied to trading activity, which tends to surge in bull markets and drop sharply during downturns. Although the company is expanding into other revenue streams, its core business remains highly sensitive to macroeconomic shifts, crypto price swings, and changing market sentiment. Regulatory uncertainty is also a significant risk. Coinbase operates in a fast-changing environment where many laws were not designed with crypto in mind. As regulations evolve, the company must deal with ongoing legal ambiguity, compliance costs, and the potential for fines or product limitations. On the positive side, long-term trends in the cryptocurrency industry - such as the rise of real-world use cases like payments, tokenized assets, and blockchain applications - create meaningful growth opportunities for Coinbase. Subscription and services revenue is especially promising, as it provides a more stable and recurring income stream that is less dependent on volatile trading volumes. International expansion is another reason to be optimistic, with the company successfully scaling into high-potential markets outside the U.S. where crypto adoption is accelerating. Coinbase is too volatile for my liking, but for someone looking to make an alternative investment in the cryptocurrency market, I believe it could be a solid pick at the Ten Cap price of $116.

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