In November 2008, a scholar (or scholars) alias Satoshi Nakamoto published a paper “bitcoin: a point-to-point e-cash system”. Bitcoin, the first cryptocurrency in history, was born. Blockchain, “mining”, bitcoin and other emerging words began to enter people’s vision. In the geek community where technology lovers gather, people are more interested in studying these new things. Blockchain is a safe and shared decentralized data ledger; The essence of “mining” is to confirm the newly generated account page of the data account book. If you confirm it successfully, you will get a reward; Bitcoin is a cryptocurrency based on blockchain technology. The cryptocurrency based on blockchain technology has four technical characteristics: 1) decentralization, there is no centralized management organization, and the rights and obligations of any node in the system are equal; 2) Openness: any node in the system can view any information on the blockchain at any time; 3) Credibility: the self-restraint of the blockchain structure makes any behavior of cheating the system will be rejected by other nodes. The powerful computing power based on consensus algorithms (such as workload proof pow, proof of work; equity proof POS, proof of stack) ensures that the blockchain data can not be tampered with and forged; 4) For scarcity, the upper limit of cryptocurrency is generally set by the algorithm. For example, the total supply of bitcoin is 21 million. Although the name of cryptocurrency has “currency”, it is not a natural currency. However, based on the above characteristics of credibility and scarcity, people gradually realize the advantages of cryptocurrency as a currency and endow it with the attribute of currency. From 2010, bitcoin miner Laszlo hanyecz bought two pizzas with 10000 bitcoins, to the end of 2017, the price of bitcoin exceeded the $20000 mark, and then to November 2021, the price of bitcoin approached $70000. Individuals and institutions who were not interested in or agreed with cryptocurrencies such as bitcoin can not ignore its existence. Cryptocurrency exchange came into being to provide services for the trading, investment and storage of cryptocurrencies. Coinbase was founded in May 2012 and became one of the pioneers of the cryptocurrency exchange track. This report aims to answer two questions: 1) what is the business model of coinbase? How profitable and growing is this business model? 2) What are the core demands of individuals and institutions who once had doubts about cryptocurrency, seeking to enter the entrance of the cryptocurrency track due to the sustained high prosperity of cryptocurrency? As a cryptocurrency exchange, how does coinbase solve their pain points?
\u3000\u30001. What is the business model of coinbase? How profitable and growing is this business model?
I. business model: transaction oriented, service supplemented, asset, product and customer flywheel effect virtuous circle. 1) Coinbase provides customers with cryptocurrency consumption, investment, collection and payment and other transaction products, as well as cryptocurrency custody, pledge, loan and other service products. The company’s customers include retail customers, institutional customers and ecosystem partners. The company started in the trading sector, then launched the subscription and service sector, and continued to promote business diversification. The trading platform implemented differentiated rates to encourage large-scale and pending transactions. The differentiated rates of incentive nature encouraged the market making behavior of large trading volume customers and provided liquidity for the platform. At this stage, transaction fees are the main source of revenue of the company, and the proportion of revenue remains above 80%. With the promotion of the company’s diversification strategy, the proportion of revenue of service-oriented products will further increase. 2) Assets, products and customers form a virtuous circle of flywheel effect. Among them, assets refer to the breadth (number of encrypted assets) and depth (liquidity of encrypted assets) of encrypted assets provided by the company; Products refer to the company’s continuous introduction of innovative financial products and services; Customer refers to meeting customer needs in an all-round way, improving products according to feedback and attracting more customers. The three are cause and effect, promote each other and form a virtuous circle
\u3000\u3000II. Profitability and growth: the proportion of the company’s cryptocurrency scale in the total market value increased from 4.5% in 2018 to 11% in 2021. The company started with bitcoin trading. After that, the types of cryptocurrencies continued to expand and the transactions of various cryptocurrencies continued to be decentralized. From 2019 to 2021, the CAGR of transaction fee income is 420%, the CAGR of service fee income is 250%, and the revenue of 2021q1 exceeds that of 2020. From 2019 to 2020, the net profit CAGR was 491%, which achieved positive net profit before listing, and the net profit margin continued to rise. Meanwhile, the total number of verified users and MTU of the platform increased steadily. Before 2020, the correlation between cryptocurrency market and mainstream market (S & P 500 index) is not strong; After 2020, the two are gradually highly correlated; We believe that this shows that the cryptocurrency represented by bitcoin is gradually entering the vision of the mainstream market, and investors begin to pay equal attention to traditional asset types and emerging asset types represented by bitcoin. We expect the company to continue its current high profitability. At the same time, the mainstream trend of cryptocurrency has laid the foundation for the company’s high growth.
\u3000\u30002. What are the core demands of individuals and institutions who once had doubts about cryptocurrency, seeking to enter the entrance of the cryptocurrency track due to the sustained high prosperity of cryptocurrency? As a cryptocurrency exchange, how does coinbase solve their pain points?
I. The credibility and scarcity of cryptocurrency have given it the attribute of currency. Since 2017, the cryptocurrency market, especially the bitcoin market, has made great progress, so that investors can not ignore its existence. Cryptocurrency, as an emerging asset type, is less mature than traditional asset types in terms of supervision, compliance and security. Individuals and institutions first involved in the field of cryptocurrency put security and compliance in the primary position of investment and transaction. Especially for institutions, the compliance of a transaction is a prerequisite for whether they invest or not.
\u3000\u3000II. Coinbase features compliance and continues to invest in compliance and safety. Coinbase actively embraces regulation, actively contacts governments and regulators of various countries and seeks cooperation, actively finds regulatory gaps in the field of cryptocurrency, and actively participates in the suggestions, early start and implementation of regulatory laws and regulations. Coinbase is the first cryptocurrency exchange with compliance license in the United States. Nearly 20% of the company’s employees are committed to compliance and license related work, and carefully choose the type of cryptocurrency entering the platform. Since the emergence of cryptocurrency exchange, various servers have been attacked and capital theft accidents have occurred frequently. Coinbase has taken the lead in security. Since its establishment, coinbase has a good record in compliance and safety, and has built a trust moat. The growth in the number of customers and coinbase’s compliance investment have formed a virtuous circle. Coinbase has obvious advantages in brand influence, user trust, compliance and product experience. Coinbase has grown from a pioneer in the cryptocurrency industry at the beginning of its establishment to an industry standard setter.
Risk tips: the risk of intensified industry competition, the risk of profit falling short of expectations, regulatory risk, technical risk, exchange rate risk, etc
