The head of Coinbase has announced a change in the cryptocurrency exchange’s business model. How will it make money in the current market environment?
Cryptocurrency exchange Coinbase will review its business model and optimize costs, the platform’s CEO Brian Armstrong said in a recent interview. Coinbase’s revenue fell 60 percent in the second quarter of this year amid a sagging coin market and a net loss of $1.1 billion. As a result, Armstrong wants to abandon trading commissions as its main source of revenue, explaining that while they do generate substantial revenue during bullish trends, cryptozyme is forcing the company to change its priorities. We tell you more about the details of the innovation.
Coinbase shares are trading at $71.48 today, and have also managed to double in value over the past month to the $100 mark.
Coinbase stock price chart for the last three months
Most amusingly, a large batch of COIN shares were dumped at the end of July by Katie Wood’s Ark Invest: the giant got rid of 1.4 million Coinbase shares worth $75 million. Accordingly, the sale price was $53 – which is pretty much the bottom of the index.
What do crypto exchanges make money on?
Here’s one of Armstrong’s quotes, published by news outlet Decrypt.
We are investing a lot in the subscription service programme right now. We understand that commissions from traders’ transactions will still be a significant part of our business even twenty years in the future, but I would like to achieve a situation where more than 50 per cent of our revenue comes from the subscription service.
We have clarified an update: the platform's current subscription is called Coinbase One and is in beta. It provides commission-free trading access for a certain trading volume, 24/7 phone support, million-dollar equivalent account protection, and help with filling out tax forms. In other words, all of this comes at an additional cost.
Note that such bonuses sound rather strange. For example, the Woo X exchange provides zero trading commissions with no restrictions as long as the platform's native token is stacked. Also zero commissions for a certain number of trading pairs is practiced by Binance, although it does this solely for marketing purposes. Well, good tech support should be there by default, not as an additional service. Be that as it may, this is the format the company wants to attract users to.
Coinbase One subscription terms
According to the head of the company, right now, money from users’ subscriptions accounts for only 18 percent of the company’s revenue. Future expansion of the service is planned, with Coinbase already working in that direction, Armstrong said.
As Coinbase moves away from its reliance on commissions, Armstrong also believes the company needs to move away from its US-centric focus. Here’s his rejoinder.
In retrospect, we’ve perhaps too often looked at the global state of affairs through the lens of the American mindset. And I would say that has been a mistake over the last couple of years. We are changing.
Coinbase is ranked as the second largest cryptocurrency exchange by CoinMarketCap
Coinbase currently offers cryptocurrency buying and selling services in several countries – mainly in the developed nations of North America and Europe. According to analytics platform Arcane Research, Coinbase ranked third among the most popular cryptocurrency platforms in terms of unique visitors. Here’s the corresponding graph.
Number of unique visitors to cryptocurrency exchanges in the last 90 days
Coinbase’s “cost optimisation” may also include new layoffs in the company’s workforce. However, Armstrong has not yet revealed any details on the matter and only explained that the possibility of layoffs “is not ruled out in the future”.
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Coinbase’s preparedness for any negative events in the market cannot be described as overreaching. Still, for now, Bitcoin’s price is fluctuating below the $22,000 level, and enough indicators suggest that we are unlikely to see a new bull run in the near future. According to the Glassnode platform, BTC’s local rise to $25,200 the day before was accompanied by massive sales of the coin by many market players. Which means it was not the starting point for a new phase of industry growth.
BTC inflows and outflows to cryptocurrency exchanges
What will happen to the Bitcoin exchange rate in 2022
From a larger scale perspective, Bitcoin’s current price swings are simply a continuation of the asset’s nearly three-month movement in the $17,000 to $22,000 range. That said, BTC’s growth has been largely held back by negative factors in both the US and global economies.
Bitcoin exchange rate
But it is too early to despair, because there are positive forecasts. Jarvis Labs platform analyst nicknamed JJ stated yesterday that Bitcoin’s MVRV indicator points to the prospect of local growth in BTC in the near future, reports Cointelegraph.
Recall, MVRV is the ratio of realized and market capitalization of Bitcoin, that is, the value of the indicator is defined as the result of dividing the capitalization of coins at the time of their last movement by the current market capitalization.
On the chart, JJ noted periods of time when the MVRV reading was relatively as low as it is now. Here’s the analyst’s quote.
The three lowest MVRV readings were:
– in March 2015, when Bitcoin was trading below $250;
– in February 2019, when Bitcoin bottomed around $3,500;
– and now, when MVRV is -0.42 points.
This means that, on average, BTC transactions are taking a big loss. The MVRV value falls so low when price lows are reached.
That is, the expert believes that Bitcoin is not that far from its current price low. However, time will give a final answer to this question.
MVRV indicator
We believe that it is rather risky to make any long-term plans about the market based on just one indicator, because the cryptocurrency industry has repeatedly proved its unpredictability. Bitcoin is still moving in a global horizontal channel and the coin niche as a whole is still in a collapse phase. Accordingly, traders and crypto investors are better off being prepared for anything - including the downside - than betting on and depending on a certain duration of a bearish trend.
What do you think about this? Share your opinion in our Millionaire Crypto Chat. There we will discuss other important developments from the blockchain world.
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