Does cryptocurrency news mark the fate of Coinbase shares?

Does cryptocurrency news mark the fate of Coinbase shares? - coinbase crypto cryptocurrenciesThe shares of the large US cryptocurrency exchange Coinbase (NASDAQ shares: COIN) took a hit this morning after Binance.US announced plans to eliminate Bitcoin trading fees for users who trade with the US dollar, Tether, USD COIN, and Binance USD.

The move comes as the cryptocurrency market is faltering and the price of Bitcoin fell below $ 18.000 last weekend. This is another major threat to Coinbase, whose shares have fallen by more than 78% this year due to decreasing cryptocurrency trading volume and cryptocurrency prices. Is the news a sign of condemnation for the title? Let's take a look.

Trading fees are important to Coinbase

Trading fees make up the bulk of Coinbase's revenue. For example, in the first quarter of 2022, when trading volume on the platform fell to its lowest level in the past five quarters, net revenue also declined. The big concern is that, even with revenue declining in the first quarter, transaction revenue still accounts for around 87% of total revenue.

So, if Coinbase were to cut trading fees to keep up with the competition, it would undoubtedly be in trouble given the company's current business model. This is the main argument of legendary investor Jim Chanos, whose fund is shorting the stock.

"Coinbase was not a cryptocurrency pricing choice," Chanos said in a podcast a few weeks ago. "It was a call about what we thought was some kind of ancillary and predatory business model."

Chanos, famous for its bets on former companies like Enron, expects the 1,5% commission that Coinbase charges to exchanges will drop to as low as 0,50%. Chanos noted that it has already dropped by 4%.

Asked about trading fees during the company's May 11 earnings phone call, Coinbase CFO Alesia Haas said trading fees have remained stable and the mixed fee rate has increased in the previous two quarters. .

But Binance.US isn't the only exchange competing on fees. Financial services platform SoFi also announced that it will allow users to invest a portion of each direct deposit in cryptocurrencies without commissions.

Is Coinbase Doomed?

While I wouldn't say this is a good development for Coinbase and that some tough times may lie ahead, I wouldn't go so far as to say the company is doomed.

For one thing, Coinbase has long known that it needs to diversify its revenue and is working towards that. During the recent earnings press conference, the company pointed out that more than half of its active users use Coinbase for activities other than trading, including growing cryptocurrencies, spending cryptocurrencies with companies, and using it in decentralized applications. .

Additionally, Coinbase is looking to diversify revenue with subscription services. Coinbase One, the company's subscription service, allows users to trade cryptocurrencies without commissions for up to 10.000 transactions per month. While it still does not represent a major portion of revenue, Coinbase's subscription and service revenue grew approximately 1% in Q170 over the previous year.

I think increased competition could put pressure on trading fees and therefore the company, but Coinbase has already survived the cryptocurrency winters and still has one of the most established brands in the industry. If you think that cryptocurrencies will be around in 10 years and that more people will be trading them than today, it is difficult to imagine a world in which Coinbase is not a leading broker in this sector.