- Coinbase is a regulated cryptocurrency exchange and the market leader with an 11% share of the market.
- Coinbase offers over 55 different coin offerings and trades over $300 billion in quarterly volume.
- Coinbase sees market opportunity through entry of new investors, introduction of new currencies, and consolidation of exchanges.
Coinbase is the world's largest regulated cryptocurrency exchange enabling over $300 billion in quarterly volume of crypto trades across more than 35 countries. This article unpacks everything you need to know about how Coinbase generates revenue.
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What does Coinbase do?
Coinbase has a reputation as the world's leading crypto exchange. The company launched its IPO in early 2021, with dismal results, falling from its reference price of $250 in the first trading session. However, stock price aside, the company has an impressive following, with many US and EU-based users.
The company’s platform allows users to buy and sell cryptocurrency. Unlike the other deregulated exchanges, Coinbase allows trading in crypto/fiat pairs, and it also accepts deposits and pays out in fiat currencies like the dollar and Euro.
Coinbase earns fees on the charges it produces for allowing users to access the brokerage and the exchange. Coinbase also acts as a custodian for user funds, similar to a bank. It also plays a central role in listing new cryptocurrencies, giving it a similar role for cryptocurrencies as the NYSE or NASDAQ equity markets.
While Coinbase operates in a decentralized market, the company finds itself a centralized player, acting as a centralized organization, not like a decentralized ledger. The company offers its exchange services through a desktop client and through a mobile app.
Users have the chance to open accounts and use hot wallets on the platform. The company's trading interface is slick and smooth, providing traders seamless access to the global cryptocurrency markets.
The exchange also offers traders excellent liquidity, and it has yet to experience any security breaches or other issues. The company keeps all its holding in cold wallets, so there's nothing for hackers to steal if they do penetrate the systems.
Coinbase offers crypto traders one of the best platforms online for trading.
How does Coinbase work?
AirBnB engineer, Brian Armstrong, decided to work on Coinbase while he was at AirBnB. The engineer founded Coinbase in 2011, obtaining development funding from Y Combinator.
The company offers traders four primary platforms they can use to manage their cryptocurrency experience. The company operates in over 35 countries, providing services across the spectrum of the crypto-sphere.
Coinbase, GDAX, Custody, and Toshi are all offered via Coinbase. The most popular are the GDAX and Coinbase platforms, providing crypto traders with direct access to the market and a huge range of pairs to trade, including crypto/USD pairs.
How Coinbase makes money
Coinbase makes money from the spread on crypto trades made on its platform, transaction fees on the Coinbase debit card, spread when converting to fiat currency, and staking. The exchange is one of the few regulated options, and it reports transactions to the IRS, unlike deregulated crypto exchanges like Kraken or Binance.
Buy and sale transactions
Coinbase charges traders a spread on the buying and selling of cryptocurrencies. The spread is equal to 0.5% for all crypto purchases and sales through the Coinbase platform. Users requesting crypto transactions have Coinbase attempt to fill their order through its trading platform, Coinbase Pro.
Coinbase sets the exchange rate for all crypto transactions, otherwise known as the "consumer exchange rate." The company adds a margin, or spread, to the current exchange rate listed by the market.
Coinbase also charges users separate fees over the spread, such as a flat fee or a percentage of the transaction value, otherwise known as the "Coinbase fee."
Coinbase trading fees typically vary based on the user's location, their payment method, and other contributing circumstances. Coinbase may also charge additional fees for transfers coming to and from bank accounts.
Coinbase always notifies its clients of any outstanding Coinbase fees, but not for margin trades in margin accounts. The company issues receipts for transaction costs after processing them through its platform.
Coinbase also offers USD loans from itself or its affiliates. In return, Coinbase collects fees and liquidates bitcoins as collateral under the loan agreement. The company charges users a flat fee of 2% of the transaction value.
Coinbase debit card transaction fees
Coinbase also offers users a dedicated Coinbase debit card, allowing the user to spend USDC through the card. The card comes with no fee, but Coinbase charges a flat 2.49% transaction fee for all purchases made with the card.
US residents can apply to adjust their spending limit to allow access to $100 of bitcoin, with the same flat fee.
Cryptocurrency to fiat conversion
Coinbase charges its users a spread or margin of up to 2% on all crypto conversions into fiat currency.
Users pay a 4% fee on the total transaction value for all deposits, purchases, or crypto sales through the Coinbase platform. Some payment methods may see Coinbase waive this fee for the user.
Users that hold crypto on the Coinbase exchange have the option of "staking" their coins in return for interest payments. Coinbase distributes the earnings, taking a 25% commission for processing the transaction.
Future growth engine
With the crypto market worth approximately $1 trillion, Coinbase has a leading 11% market share, which continues to grow. However, Coinbase faces increasing competition from other exchanges. However, as the only US-regulated exchange, it operates in a market away from the deregulated exchanges like Kraken and Binance.
Coinbase sees future growth potential through entry of new crypto investors, consolidation in the crypto exchange market, which currently has 300 different players, and introduction of more cryptocurrencies.
However, the company does face pressure from DSDT, another stable coin popular with crypto transactions and comparable with the USDC offering from Coinbase.
Coinbase gets considerable competition from the deregulated exchanges, but Bitflyer presents its most recent regulated competitor. However, with an established brand presence, we feel that Coinbase will remain the top US-facing regulated exchange for the next generation.
Some trading apps like Robinhood and Webull present valid competitors in the mobile space, but they lack the full-service offering Coinbase has for crypto traders.