Global Compliance Challenges Will Hamper Crypto Trading Services

Key Takeaways

• Intensifying regulation, cybersecurity threats, and reliance on volatile market cycles undermine Coinbase's growth prospects and create significant earnings unpredictability.
  
• Commoditization and the rise of decentralized finance diminish Coinbase's core business, while Central Bank Digital Currencies threaten its transaction-driven revenue model.
  
• Improving regulatory clarity, product innovation, and expanding institutional and stablecoin-related businesses are positioning Coinbase for stronger growth, margin expansion, and more diversified, resilient revenues.

Catalysts

Operates platform for crypto assets in the United States and internationally.

• Global regulatory scrutiny is intensifying, leading to mounting compliance costs and the persistent risk of sudden limits on Coinbase's business model; as governments formalize crypto rules, product and market access could be restricted, reducing the company's addressable market and creating headwinds for long-term revenue growth.
  
• The rapid commoditization of crypto trading services and the accelerating shift of users and capital to decentralized finance platforms is likely to erode Coinbase's core retail business, compressing net margins as price competition intensifies and transaction fees trend toward zero.
  
• Ongoing dependence on volatile crypto market cycles makes Coinbase's earnings unpredictable and exposes the business to prolonged periods of low trading activity and declining top-line growth, as evidenced by recent 40% quarterly declines in total trading volume during low volatility periods.
  
• Recent high-profile security incidents, such as the $307 million data theft loss this quarter, underscore persistent cybersecurity risks that undermine user trust, drive up technology and insurance expenses, and threaten both customer acquisition and retention-significantly increasing pressure on future net income.
  
• Growing momentum behind Central Bank Digital Currencies presents a structural threat to the demand for decentralized cryptocurrencies, which could sharply reduce trading volumes and shrink the company's transaction-based revenue base over time, impairing sustainable earnings growth.

Coinbase Global Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Coinbase Global compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Coinbase Global's revenue will decrease by 2.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 42.7% today to 15.4% in 3 years time.
• The bearish analysts expect earnings to reach $950.1 million (and earnings per share of $3.18) by about August 2028, down from $2.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 71.8x on those 2028 earnings, up from 28.5x today. This future PE is greater than the current PE for the US Capital Markets industry at 26.1x.
• Analysts expect the number of shares outstanding to grow by 3.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.18%, as per the Simply Wall St company report.

Coinbase Global Future Earnings Per Share Growth

Risks

• Regulatory clarity is improving in the U.S. and globally, and recent SEC policy changes such as the introduction of a single license for crypto super apps are reducing compliance burdens, allowing Coinbase to innovate faster and lower operating costs, supporting stronger revenue and higher net margins over time.
  
• The company is positioned as a leading infrastructure provider for the growing tokenization of equities and real-world assets, which has the potential to double or more the total addressable market for trading and drive strong growth in platform transaction volumes and recurring fee-based revenues.
  
• USDC adoption and stablecoin payment rails are rapidly accelerating, with the ecosystem expanding to B2B payments, cross-border commerce, and partnerships with major payment players like Shopify, indicating significant new markets and diversified revenue streams that can boost overall earnings resilience and reduce reliance on volatile retail crypto trading.
  
• Coinbase's institutional business is expanding through Crypto-as-a-Service, custody, derivatives, and white-labeled solutions for major banks and fintechs (e.g., PNC, JPMorgan, Stripe, PayPal), which is likely to drive growth in assets under custody, enterprise subscriptions, and trading volumes, enabling the firm to capture higher-margin, durable revenues.
  
• The company is proving successful at launching and scaling new products like perpetual futures, decentralized exchange integration, and the Base Layer 2 scaling solution, demonstrating strong innovation that supports ongoing market share gains and margin expansion, all of which can translate into sustained revenue growth and improved earnings power.

Valuation

• The assumed bearish price target for Coinbase Global is $189.87, which represents two standard deviations below the consensus price target of $366.43. This valuation is based on what can be assumed as the expectations of Coinbase Global's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $510.0, and the most bearish reporting a price target of just $185.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $6.2 billion, earnings will come to $950.1 million, and it would be trading on a PE ratio of 71.8x, assuming you use a discount rate of 8.2%.
• Given the current share price of $317.55, the bearish analyst price target of $189.87 is 67.2% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.