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Case study: Why investors are excited about Coinbase

What does Coinbase do and why might investors be interested?

Coinbase is an exchange platform for buying and selling many different cryptocurrencies. Since we first spotted a narrative shift for Bitcoin, other public companies, including Tesla, have made large investments in Bitcoin and even intend to adopt it as an acceptable form of payment. 

Considering Coinbase is the largest cryptocurrency exchange and their unique direct listing IPO, the company is catching some serious attention from investors.


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How does coinbase make money?

Similar to how an exchange works in other financial markets, Coinbase makes money connecting buyers and sellers of various cryptocurrencies. They generate most of their revenue through a take rate for each transaction.

A take rate is simply a percentage of the transacted value - the buyer pays $1.05 for one BTC, the seller receives $1.00 for one BTC and Coinbase keeps the $0.05 difference or 5% take rate.

Future growth

As a result of this revenue model, Coinbase's future growth depends on the adoption of cryptocurrencies. As cryptocurrencies become more popular, transaction volumes will rise, leading to higher revenue growth from take rates.

Additional services, like wallets, are also avenues for future growth as the utility of crypto increases.

In a way, owning shares of Coinbase allows an investor to get exposure to cryptocurrency without having to actually own any. This is particularly attractive for folks who are interested in the crypto space but aren't ready to own coins.


What other companies do you consider similar to coinbase?

Stripe recently raised money on a $100billion valuation and many savvy investors saw it as an opportunity to get exposure to some of the top startups. Many emerging companies use Stripe for payment processing. The more revenue that Stripe's customers generate, the more payment processing they need which becomes additional revenue for Stripe. 

Similar to how Coinbase's revenue is tied to the transactions of crypto, Stripe's success is tied to the transaction volume of its customers.

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