The Coinbase purse and digital change service, founded in 2012 and backed by Silicon Valley investors, recently told shareholders that it had reserved $ 1 billion in revenue in 2017. A new independent analysis says that about 43 percent of that came in December when the price of bitcoin was rising, and the company's revenues have plummeted since then.
"They are by no means following that same path," says Jonathan Meiri, CEO of Superfly Insights, which analyzes data on consumer behavior. "There's an increase in December, it's not like he stayed on this plateau in January, February.
"In no way, the imagination continues that same trajectory".
The 43 percent figure is in line with what investors told Recode in January: Coinbase is expected to generate some $ 600 million in revenue over the course of the year, but "the Bitcoin run between Thanksgiving and Christmas boosted the the company's revenue in 2017 to more than one billion. " The distribution also makes sense given the increase in extreme prices that bitcoin saw in December.
The numbers of Superfly Insights are credible, says Nicolas Christin, a Carnegie Mellon professor who has experience in tracking the economy of digital currencies through his revenue analysis for the infamous dark market of the Silk Road website. However, it would be difficult to verify them using Bitcoin blockchain, the transaction book in some public way, because services like Coinbase group their transactions, he said. Coinbase declined to comment.
It is not surprising that the fortunes of Coinbase rise and fall with the price of the flagship currency of the cryptocurrency market. The New York Times called Coinbase "the heart of the Bitcoin frenzy." Coinbase makes money with transaction fees, which vary depending on where the users are and what currency they are using. In December, the price of a bitcoin rose from around $ 11,000 to more than $ 19,000 and then dropped to around $ 13,000. That month, Coinbase experienced repeated blackouts, which he attributed to "high traffic". According to the Times, the service was receiving twice as much traffic as its previous peak and eight times as much as it was in June.
"There's no reason why we can not see Bitcoin pushing $ 50,000 for December."
Higher prices and higher commercial volume meant higher transaction fees for Coinbase and a gross income that will be difficult to overcome unless bitcoin prices rise again in 2018. "It will be difficult unless the trajectory picks up", said Meiri. "It will not be so easy to reach that same number." Of course, many cryptocurrency experts, many of whom are involved with companies in space, say there will be another price increase this year. "There's no reason why we could not see Bitcoin pushing $ 50,000 in December," Thomas Glucksmann, head of marketing at the Gatecoin cryptocurrency exchange, told CNBC earlier this month.
Coinbase is popularly considered one of the favorites of the cryptocurrency movement, the company that discovered the classic pick and shovel business for the Bitcoin gold rush. For a long time, it was difficult for the general public to have access to cryptocurrencies: either they had to discover how to extract the currency or find someone willing to sell, perhaps through a website like LocalBitcoins. Coinbase was the first conventional service that facilitated the purchase and storage of bitcoins and other digital currencies through bank transfers and credit cards. Its CEO, Brian Armstrong, gave interviews to the media and presented at conferences, in contrast to the mysterious and pseudonymous entrepreneurs of the Bitcoin 1.0 era. That and the Coinbase Silicon Valley pedigree gave it legitimacy. At the end of 2017, and despite faulty customer service and a fight with the IRS, Coinbase was at the top. A profile of the New York Times reported that the company was adding two new floors to its San Francisco office.
However, Coinbase's competitors were on their heels, and now there are multiple options to buy digital coins. In 2018, Square and the Robinhood stock trading application introduced support for digital currencies. Both companies said they are not charging fees for digital currency transactions, which puts pressure on Coinbase.
"I'm curious about how Coinbase intends to build a recurring business considering the low revenue per user per month."
Superfly Insights also discovered that the breakdown of Coinbase transactions changed drastically throughout the year. In early 2017, Superfly Insights discovered that bitcoin purchases accounted for approximately 90 percent of Coinbase transactions and that the average purchase was $ 483. One year later, bitcoin purchases represent less than half of all purchases. transactions in Coinbase, which is also compatible with Ether, Litecoin and, as of December 2017, Bitcoin Cash. Superfly Insights also found that users rarely sell their bitcoins, but when they do, the average sales order is almost three times higher than the average purchase: $ 1,393.
"I'm curious about how Coinbase intends to build a recurring business considering the low revenue per user per month," Meiri wrote in his analysis. "In simple terms, people come to Coinbase to buy Bitcoin, they continue to do so until they accumulate a certain amount and that's it, considering how many times a day I check Coinbase, it's quite shocking how little I do within the tariff."
The analysis of Superfly Insights shows how Coinbase's revenues reflect the volatility and imbalance of the world of digital currencies still incipient. The company can increase its revenues through its new commercial platform, Coinbase Commerce, which allows suppliers to accept payments in digital currency, and if more merchants use digital currencies, the price of those currencies can also go up. That will depend on whether Coinbase can convince companies to jump into the world of digital currencies. "They need to approach the merchants, present the commercial case," Meiri said in an email. "Most traders are not interested in the (relatively small) number of BTC or ETH holders."
Coinbase has raised more than $ 225 million from investors. Its most recent funding round valued the company at $ 1.6 billion, in part due to its explosive growth.