While most readers are already familiar with how the stock market can help create wealth for investors in the long run, cryptocurrencies have attracted the attention of many in recent years. This budding asset class has certainly fallen out of favor in recent months, but there's no denying the impressive returns it has produced before then.
If you are new to cryptocurrencies, you should seriously consider buying shares of Coinbase Global (quotation COIN), the leading US cryptocurrency brokerage and exchange operator.
With the entire market down in the past few months, Coinbase has been facing major difficulties. As the company generates 87% of its revenue from trading fees, the huge plunge in industry valuations has affected the volume of the company's platform. Management, led by founder and CEO Brian Armstrong, is bracing for an extended period of macroeconomic weakness.
"It looks like we are entering a recession after an economic boom that has lasted more than 10 years," he said in a blog post for the company. "A recession could lead to another cryptocurrency winter and could last for an extended period."
This pessimistic outlook is why Coinbase recently decided to cut 18% of its workforce. Managing expenses and maintaining operational flexibility is the top priority right now, especially as other cryptocurrency companies have gone bankrupt or are on the verge of bankruptcy.
The recent turmoil in the cryptocurrency industry could scare investors away from this still nascent and under-tested asset class. While some of the major cryptocurrencies out there, such as Bitcoin and Ethereum, have produced stellar historical returns, investors need to be able to handle the inevitable ups and downs. The current prospects are difficult, but that does not mean that the industry's prospects should be canceled.
Bet on the growth of cryptocurrencies
Until now, cryptocurrencies have mainly been used as a tool for financial speculation. People are seeing prices soar and want to take action to make a quick profit. And it is precisely for this reason that Coinbase's revenue mix has turned towards transaction fees. In the future, however, the company hopes to help build a cryptocurrency economy where real-world utility dominates.
The next part of Coinbase's strategy is to help create a new financial system. And then, it wants to be the main entry point for users to the crypto economy as an application platform. Think of the Apple App Store, but all services are crypto-native. It's a bold ambition, but this plan is important because with real use cases, cryptocurrencies are expected to become less volatile and have more importance in people's daily lives.
In the last quarter, Coinbase's subscription and service revenue, which includes things like blockchain rewards and custody fees, increased 169% from a year earlier, faster than the company's overall sales growth. This is clearly a positive trend to keep an eye on. Promising features like Coinbase Cloud, an infrastructure tool for developers building blockchain-based projects, and Coinbase NFT, a marketplace for creating, buying and selling non-fungible tokens, could provide new pillars of growth.
Arguably the most underrated aspect of the company is Coinbase Ventures
Coinbase's in-house venture capital arm has made over 250 different investments (as of December 31, 2021) since its founding in 2018. The leadership team has not only created one of the best-known brands in the industry, Coinbase itself, but also has financial ties with a number of other innovative businesses in the cryptocurrency industry.
I believe that an investment in Coinbase shares is essentially a gamble on the growth of the entire cryptocurrency industry. In other words, as the digital asset market is hoped to continue to gain value over the next decade and beyond, Coinbase's business should benefit from its multiple sources of income and ownership of emerging crypto companies. For newbies to the industry, the upside is that you don't need to figure out which cryptocurrencies will increase in value. However, investors need to be very patient and expect strong volatility along the way.