If you had asked me a year ago about Coinbase Global (NASDAQ: CURRENCY) Upon reaching the list of growth stocks that could potentially make you a fortune, you probably would have discarded the idea.
However, recent events have changed my perspective. Despite my initial reservations, it has become clear that Coinbase has shown agility and improved things. So, let's explore the possibilities for the company as it pushes the crypto industry forward.
Image source: Getty Images.
A renewed revenue model takes hold
First on my list of reasons why I wasn't all that excited about Coinbase's potential was the company's revenue model. At the time, it relied heavily on one source of revenue: transaction fees. So when cryptocurrency winter hit last year, the lack of diversification became a drawback, causing the company to post a $1 billion net loss in the second quarter of 2022.
Cryptocurrencies are well known for their volatility. So as long as Coinbase remained unable to generate revenue during downturns, its concentrated revenue stream would pose too much risk that would outweigh its potential reward.
But since then many things have changed. In just one year, the company underwent a remarkable transformation and reduced its dependence on transaction fees. With a diversified revenue model that has generated revenue amid a brutal cryptocurrency bear market, Coinbase is now generating revenue from its subscriptions and innovative service products, utilizing an international expansion strategy and even launching its own blockchain , Base.
And cost cutting has left expenses at their lowest level in more than a year. Add it all up and Coinbase is just $2 million away from turning a profit according to the most recent quarterly earnings report.
Given that the recent resurgence of the cryptocurrency market makes it seem like the cryptocurrency winter has subsided, it is hard to imagine Coinbase not closing this gap and returning to profitability in the next quarter.
Possible victory in the courtroom
The second reason for my doubts about Coinbase's long-term potential was the numerous legal battles facing the broader crypto industry. As the cryptocurrency market has evolved, agencies like the Securities and Exchange Commission (SEC) They have aggressively launched legal battles to assert their authority over digital assets.
The SEC's lawsuit, which culminated in a subpoena issued to Coinbase in June, citing a 1946 court ruling known as the Howey Test, alleges that Coinbase sold unregistered securities. If this is determined to be the case, it would seriously threaten Coinbase's core functionality as a crypto exchange and jeopardize any growth prospects.
The initial reaction across the crypto sector was that this could be the nail in the coffin for Coinbase. But sentiment has changed throughout the year as various judicial and legislative developments have begun to favor the crypto industry.
The most notable is the Vibe case, in which a judge considered token sale to retail investors did not meet the criteria for a sale of securities. The SEC, in a complaint tracing those against Coinbase, accused the cryptocurrency of engaging in improper sales of unregistered securities.
Adding to the change in sentiment are efforts by Congress to introduce favorable crypto legislation, and bitcoin even becoming a topic of conversation during the recent presidential campaign debates.
The recognition of cryptocurrencies as a distinct asset class separate from any specific governing body appears to be gaining momentum. While the legal tug-of-war between the SEC and Coinbase will drag on well into 2024, don't be surprised if the company scores a historic victory.
The opportunity at hand
There are few better options than Coinbase for investors looking for genuine long-term growth opportunities. Over the past five years, the cryptocurrency market has had a compound annual growth rate (CAGR) of over 60% and Coinbase, thanks to recent developments and improvements to its business model, is in a prime position to benefit from this growth.
For the sake of fun, let's speculate: if Coinbase were to ride the waves of growth hitting cryptocurrencies, a 60% CAGR would mean your $10,000 would be worth more than $1.2 million in 10 years. It may be impossible to imagine such phenomenal growth, but early investors in Amazon, Appleand other tech giants probably couldn't have imagined the kind of progress that has occurred since then.
Coinbase stock has been on the rise in 2023, and it is increasingly difficult to imagine a scenario in which it doesn't someday reach new highs. As the cryptocurrency market continues to mature and Coinbase cements its role as a leader in the burgeoning industry, investors could be wrong to overlook this opportunity to scoop up shares while they are trading 45% below their all-time high.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. RF Fulton has positions in Bitcoin and Coinbase Global. The Motley Fool positions and recommends Amazon, Apple, Bitcoin, Coinbase Global, and XRP. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
