Does Coinbase Have a Diversification Problem?

Coin Metrics latest “State of the Network” report takes a deep dive into Coinbase’s revenues, a perennially interesting subject for those looking to understand the crypto exchange market in the U.S. According to the latest figures, Coinbase has seen cash inflows diversify away from trading fees, which for years accounted for upwards of 90% of the exchange’s revenues.

Looking at its most recent quarterly earnings report, Coinbase reported revenues of $707 million with $327 million coming from spot trading. While still the largest source of cash flows, fees now account for just 77% of its total revenues. Other business lines including subscription fees for a pro product as well as wallet, staking and on-chain scaling services are an increasingly large share of the pie.

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Why not milk the cash cow forever? Well, Coinbase has historically been able to charge above-market trading fees as perhaps the most trustworthy U.S. exchange and because U.S. crypto users are not really supposed to be using cheaper, overseas competitors.

This situation isn’t exactly about to change anytime soon – even despite the firm’s ongoing U.S. Securities and Exchange Commission’s (SEC) lawsuit (then, what fintech hasn’t been dinged by the SEC?). But it does mean Coinbase has limited runway for growth, which is concerning considering its global expansion has been hit or miss and recent rollbacks in markets including Japan and India.

There are still plenty of Coinbase bulls in the world, not even counting the firm’s largest stock holder Cathie Wood. The Coin Metrics folks seemed to end on a positive note, including thoughts on a number of potential business lines with growth potential including a tie up with MakerDAO, revenues from USDC as well as its nascent derivatives push.

But in face of the growing narrative around Coinbase’s seemingly successful push towards diversification, I want to bring in a dose of reality: Coinbase’s total revenues from trading fees are down because trading fees are down. Period. If this were a year as frenzied as 2021, I’m sure the seemingly growing sectors like sequencer fees and…