Coinbase is capitalizing on the bitcoin ETF craze to post its first quarterly profit in two years

Coinbase Global (COIN) reported its first quarterly profit in two years as trading surged amid a new wave of optimism about digital assets, marking a potential turning point for the largest U.S. cryptocurrency exchange.

Investors cheered the news, sending Coinbase stock up more than 13% in pre-market trading on Friday. The stock is down 5% so far in 2024 as of Thursday's close but is up 180% over the past year.

Coinbase generated $273 million in revenue during the fourth quarter, well above analysts' expectations. This was the first positive quarterly earnings result since the fourth quarter of 2021, when the recent cryptocurrency boom was still raging.

The surprise fourth-quarter performance lifted full-year results to a net profit of $95 million.

Among the reasons Coinbase soared into the black: it attracted more traders to its platform and more customers for its subscription business and services. Total transaction revenue jumped 64% to $529 million.

It also benefited from a $121 million non-cash release that went toward taxes along with an $18 million gain from debt buybacks.

Brian Armstrong, CEO of Coinbase, looks during the Piper Sandler Global Exchange and FinTech Conference in New York City, US, June 7, 2023. REUTERS/Brendan McDiarmid

Brian Armstrong, CEO of Coinbase. Reuters/Brendan MacDiarmid (Reuters/Reuters)

What helped push more people to Coinbase was the sudden market spike caused by speculation that the Securities and Exchange Commission might give approval to bitcoin exchange-traded funds.

ETFs would allow investors to gain exposure to the world's largest cryptocurrency without having to own it, potentially expanding the mainstream appeal of digital assets.

The SEC eventually granted these approvals in early January, and Coinbase served as custodian for eight of the 11 ETFs. The firm can benefit from working with ETF issuers through its custodian, lead trading and trade settlement businesses.

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Bitcoin (BTC-USD) has since risen above $52,000, its highest point since 2021. It is still far from its all-time high of $68,789 in 2021, a year in which it benefited from a period of lower… Interest rates and fiscal stimulus set by it. Surplus savings in investors' pockets.

The market crashed in 2022 as prices soared and giant cryptocurrency exchange FTX collapsed, before making a surprise comeback during 2023. Bitcoin rose more than 150% last year.

The bullish case for Coinbase and the larger industry in 2024 is that many of crypto's biggest problems are now officially in the rearview mirror following the criminal conviction of FTX founder Sam Bankman-Fried and a guilty plea from Binance CEO Changpeng Zhao.

However, Coinbase still faces some challenges. It is in the midst of a legal battle with the Securities and Exchange Commission, which sued the exchange last June for allegedly operating an unlicensed crypto securities exchange, broker and clearing agency, putting its future profits at risk.

The company chose to defend itself in court, and its CEO Brian Armstrong has been vocal about his disagreements with the SEC.

The company is also actively lobbying Washington for more clarity on how to regulate the world of cryptocurrencies.

“We remain confident that the United States will obtain this right, whether that is from the courts creating new case law, from Congress passing new legislation, or ultimately from the 52 million Americans who have used cryptocurrency voting in this year,” he said during a call with next elections.” Analysts Thursday

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“Cryptocurrencies still need to have their iPhone moment,” Armstrong said. “We hope we can help make that happen.”

David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrency, and other areas of finance.

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