The Bitcoin ETF Race has sent Coinbase shares up 55% month-to-date. Here's how profitable it could be for them

Despite panic over an “SEC War on Crypto”, Coinbase stock is up 55% since June and 130% YTD.

Why?

The jump since June is, as many here know, because BlackRock, Fidelity, and Ark Invest are all competing to offer Bitcoin ETFs and Coinbase has been chosen to provide surveillance capabilities and custodial services for them. Coinbase would also be their trading platform of choice. This could significantly boost Coinbase's profits, as transaction fees and custodial services are a huge profit center for them.

The TLDR is there’s a TON riding on the approval of these ETFs.

I'm doing the full breakdown tomorrow as a guest writer here but points below are included for discussion.

How ETF approval helps crypto:

Increased mainstream adoption: An ETF is the 'plumbing' for money into crypto, but it doesn’t matter if there’s no water running through the pipes. So where's it going to come from? The biggest unlock would be in US TAX-ADVANTAGED RETIREMENT ACCOUNTS which represent $35 trillion dollars in AUM. Right now $500M-$1B of that is in crypto via 401ks / IRAs, which represents a 0.002% share (basically 0%). The US retirement market has doubled in the last decade and tends to be very sticky capital, so a further allocation to crypto would be massive for the industry + Coinbase

Market integrity and oversight: The introduction of Bitcoin ETFs would provide investors with easier and more regulated access to Bitcoin as an investment. Coinbase's role in enhancing market integrity and minimizing fraud and market manipulation is crucial because Coinbase is the market’s biggest good-faith actor. The team has tried to work very closely to advance regulation - being selected by multiple firms applying for Bitcoin ETFs positions Coinbase as a key player in the industry and adds credibility for the firm to represent the industry in regulatory discussions.

How approval helps Coinbase:

Increased transaction fees: Coinbase could profit from increased transaction volumes associated with Bitcoin ETFs. Firms would buy/sell Bitcoin daily underlying the ETFs to track Bitcoin’s price accurately, and Coinbase would take a cut on each transaction.

Custodial services revenue: Coinbase's selection as a custodian for Bitcoin ETFs means it would earn revenue (0.10% AUM) from providing secure storage and management of the cryptocurrencies held by the ETFs. If they became equal in size to Grayscale, which holds 630,000 Bitcoin, this would be ~$190M in revenue on top of the $800M they generated last quarter.

TLDR: The fact that major financial institutions like BlackRock and Fidelity are actively pursuing Bitcoin ETFs indicates a shift in perception, as crypto is being recognized as a viable investment asset. And Coinbase stands to have a massive payday if the current ETF applications, the majority of which have Coinbase as the partner of choice, are approved.

P.S.: If you liked the analysis above, there’s more in this free newsletter I'm a guest writer on tomorrow that covers crypto news several times a week. It hits regulation, NFTs, Defi, and everything in between. Pairs well with an espresso shot every morning.