Coinbase CFO’s outlook on the future of cryptocurrency

Cryptocurrencies included bitcoin are hitting all-time highs, but Wall Street is sending shares from the cryptocurrency leader Coinbase lower after Tuesday's earnings and a weak quarter for crypto trading.

Coinbase reported users who carry out monthly transactions fell compared to the previous period, falling to 7.4 million from 8.8 million in the second quarter, albeit from 6.1 million the previous year. Trading volume fell to $ 327 billion from $ 462 billion in the prior quarter and disappointed the street in quarterly revenue.

Losses narrowed after Tuesday's decline after business hours of as much as 13%, and some in Wall Street remains bullish on the outlook for the company with price targets as high as $ 500: Its shares were trading below $ 350 on Wednesday.

"We don't think the sequential drop in revenue should have been a surprise," BTIG equity analyst Mark Palmer told CNBC on Wednesday. Expect this quarter to be Coinbase's biggest quarter after the trade slowdown over the summer.

in a shareholder letter, the company noted that its business is volatile and tried to argue that it should not be viewed as "an investment from one quarter to the next."

A survey conducted among members of CNBC's CFO Council earlier this year found increased acceptance of bitcoin as a financial instrument, and more than half said it is "for real", although CFOs expressed concern about setting a fair value on the cryptocurrency. Among US CFOs specifically, the percentage saying Bitcoin is real doubled from 33% to 65% in the March survey.

Coinbase CFO Alesia Haas laid out several key strategies for the $ 70 billion company during her earnings call and in response to questions from equity analysts.

While crypto trading volumes declined, a factor in Q3 that also criticized brokerage firm Robinhood - Haas emphasized that the company does not see itself as a commercial company.

"We don't think of ourselves as primarily rate competitors today," Haas told analysts.

That's because commerce is inherently a commodified business.

Coinbase's CFO said that on the retail side of the cryptocurrency market, the company is competing "for access to assets."

Use of the future stake, transacting with products like your Visa Coinbase debit card and the ability to interact with DeFi, or decentralized finance, will be more important business markers for the company, not trading volume or single quarter revenue.

"Rates are not the main thing we compete in," Haas said.

And rates will be lowered in the future, he added.

In periods of low volatility, which occurred during the summer, there is more activity between institutions and their Coinbase Pro users than retail, and the opposite is true for periods of high volatility, which reoccurred in September and October. .

"However, we think that in the long term, moving away a bit, we will see a rate compression as more and more products are traded in crypto," Haas said. "And then, we already started to focus on diversifying our income."

Coinbase is betting that as cryptocurrencies enter what the CFO called "the public services phase," users will not flock to its platform just to transact, buy and sell cryptocurrencies.

"They are also getting involved with products like gambling, winning, borrowing, lending. And this is just the beginning," Haas said of his efforts to diversify sources of income and reduce income volatility from quarter to quarter.

However, with a $ 70 billion valuation, investors may remain concerned that competition in those additional markets will also be high.

Coinbase also has faced backlash from regulators on a previously planned loan program.

Coinbase's CFO said there is a "new kind of institutional investor" who decides to make an allocation to cryptocurrencies and it's an adoption curve that "starts with bitcoin, and then moves to ethereal but it is rapidly recovering from other crypto assets. "

Haas says the company is looking to those investors seeking a broader allocation to DeFi and betting on the cryptocurrency sector more broadly as an alternative to traditional financial systems.

"It feels less speculative and more driven by the utility and wider adoption of crypto in more traditional use cases," Haas said.

The Securities and Exchange Commission recently approved the first ETF linked to bitcoin futures and Coinbase is supporting the SEC to approve more bitcoin ETFs. Haas said that will benefit trading volumes in the crypto ecosystem and add to wider adoption because some institutions do not have the ability to invest in the underlying spot crypto.

But the CFO of Coinbase emphasized that it is a different market than the current cryptocurrency market.

"Cryptocurrency spot markets are global 24/7, there is never a dull moment in them. But the ETF market obviously follows the traditional safety timeline," Haas said .

This means that the ETF market will attract different investors and different use cases.

Bitcoin ETFs will benefit the broader spot market, and Coinbase seeks to be a custodian of that market and is "having active conversations there on how we can support the wider adoption of ETFs," Haas said.

While his business is currently only in the spot crypto market, he said that Coinbase has ambition to launch a futures trading business in the US and has submitted applications for that process.