Don't Fade This Stock's 400% 2023 Increase.

Last week, I demoed the Apple Vision Pro. It was a mind-blowing experience, and I do not doubt that in 5–10 years, people will spend hours daily living in a crossover of physical and digital reality. If you haven't had a chance to try them out and live in the US, you should. It's a revolutionary device, and once they come out with a sub-$1000 version, you can bet that I will be one of the first people to buy it.

As much as I want to buy Apple stock, it already sports a hefty $2.8T market cap. Their Apple Vision Pro device will undoubtedly help lift that number, but I'm unsure how many multiples it can/will climb. On the other hand, I've identified another revolutionary company that can climb many multiples in the next two years.

This company increased its market cap by 4x (from $10B to $40B)in 2023, much to the disdain of most Wall Street analysts, who were all on the wrong side. However, based on the investor letter I read and analyzed, I am incredibly bullish about Coinbase (COIN) going into 2024 and wouldn't be surprised if it did another 4x in 2024.

I will break this article into three parts out of respect for your time. Part 1 will list why I am so bullish about COIN stock. In section 2, I will provide detailed support for my thesis. And finally, in section 3, I will identify what I see as the primary risks of owning COIN stock in 2024.

Part 1- 10 Reasons why COIN stock is something I'm buying more of in 2024

If you are a no-nonsense reader, here's a list of why I'm so bullish about Coinbase stock.

1. The Bitcoin ETF is growing fast and larger than initial expectations. According to Coinbase's CEO, Brian Armstrong, 90% of Bitcoin ETFs are in Coinbase's Custody.

2. Coinbase's agreement with Circle in Q3 2023 means that Coinbase will earn a lot of interest income if interest rates stay at estimates in 2024.

3. Coinbase is adding derivative trading to its international platform.

4. There is no serious competition in the US.

5. If Coinbase beats the SEC lawsuit, that could greatly uplift the stock. It will provide free publicity and build a greater positive will to Coinbase by the crypto community.

6. Their fees and profit margins are ridiculously high. That's not great for customers, but it is for investors.

7. An ETH ETF approval would open Coinbase to more custody fees and potentially a piece of ETH staking rewards.

8. Coinbase has a seasoned executive team with a history of making correct decisions and execution. This is on full display in their 2024 investor letter.

9. Analysts are mostly bearish or neutral on the stock. If Coinbase continues executing, these analysts (pictured above eating a burrito) will have to raise their ratings, adding more fuel to COIN stock.

10. If you are bullish on crypto and Bitcoin in 2024, there's no reason to be bearish on COIN stock.

Part 2- Support for my assertions above

If you've made it this far, congratulations. I will get the AI writer working overtime to provide you with a colorful analysis that will keep you engaged until the end of the article.

Reason 1: January 10th, 2024, was a historic day. It was the day that all Bitcoin obituaries were officially put to death. Americans were given the ability to buy and hold Bitcoin, the highest-valued digital crypto, in a simple and safe format.

Crypto villain Gary Gensler got an overflowing forkful of crow as he begrudgingly approved 11 ETFs. Buying Bitcoin is now easier than ordering a Double Big Mac on the McDonald's app and walking to the front door to grab it when the Uber driver drops it off.

Within the first month, the amount of Bitcoin owned collectively by these ETFs has blown away expectations. This should continue as these 11 ETFs compete with one another to gain the greatest market share. This means an army of wealth advisors and managers will be steering their clients into what will most likely be the best-performing ETF in 2024.

More importantly, Grandpa can now feel safe converting his Boomer cash into Bitcoin without fear of having it banned or the disgusting process of self-custody. People who want to retire can own Bitcoin in their IRA accounts without paying crazy 2% fees to the Digital Currency Group for a product continually traded at a premium or a discount (GBTC) of its net asset value.

Once the wealthiest individuals have established their Bitcoin positions, Bitcoin will be advertised and marketed to the masses. This directly benefits Coinbase, which charges a nice 0.2% fee for custodying the Bitcoin in these ETFs.

$13 billion worth of Bitcoin is already in these ETFs. Assuming the price of Bitcoin stays flat in 2024, this is already trending to $100 billion+ for 2024. If Coinbase gets 0.2% on $90 billion, that is $180 million in revenue. It's not too bad for storing some digital keys.

This is recurring revenue; I imagine it has an incredibly high-profit margin. Additionally, the fact that 9 of these ETFs have chosen Coinbase to custody their Bitcoin adds prestige that no exchange can compete with.

Retail should be skittish after losing their precious crypto at the hands of Sam Bankman-Fried and his cronies at FTX, or Alex Mashinsky and his con artists at Celsius, or publically traded Voyager, who disappeared with our crypto. But if Larry Fink and Cathie Wood trust Coinbase with billions, why shouldn't retail? After all, Coinbase has already established they are trustworthy, surviving multiple bear markets.

Reason 2: Coinbase signed a beneficial agreement with Circle in Q3 2023, where they now share the interest income from USDC reserves. Check this piece out from the Circle Blog from last year:

With interest rates at 20-year highs, Coinbase is now generating massive revenues from the USDC reserves. This means Coinbase benefits with little risk, even in a high-interest environment.

This income stream will only grow as USDC gains in market cap. USDT is popular outside of the US, but USDC is the preferred stablecoin in the US.

Check out this graph of the USDC total market cap. You can see that the supply is starting to increase, meaning more interest income for Coinbase.

Reason 3: Coinbase is adding derivatives to its international platform. Derivatives are filthily profitable. Funding rates are the payday loan interest paid by degens. In the name of greed, speculative traders are willing to pay huge sums to control massive lots of crypto.

Don't get me wrong, this is extremely profitable for some traders. But based on the marketing spend ByBit has, the platform is the biggest winner. This is also supported by public data about decentralized derivative platforms like GMX or many of its clones.

Coinbase will be getting a piece of this pie. And that is good for COIN holders, providing another revenue source with yummy fees.

Reason 4: There is no serious competition in the US. I wish I understood who the US SEC works for. They didn't protect the people from fraudsters like SBF, Do Kwon, or Alex Mashinsky. They would allow sophisticated investors to invest in Bitcoin via futures but needed a court to tell them to offer it to ordinary citizens.

Then, they attack all the exchanges and provide no guidance or regulatory rules. All of this has been to Coinbase's benefit. FTX self-imploded. Binance lost its visionary leader, CZ, and will now have to play by the rules (whatever they are). Kraken got effectively neutered because they didn't have the firepower to fight the SEC.

Some say the ETFs are competition for Coinbase's traditional services, but I'm afraid I have to disagree. Coinbase offers various crypto assets, and many still want custody of their own Bitcoin. It's not a matter of taking from one pocket to put it in another. Liquidity will increase, and that will only benefit the leading crypto platform.

Inside the US, who is Coinbase's competition?

Reason 5: The SEC lawsuit against Coinbase could go in Coinbase's favor. The SEC lost to Ripple. Then they lost to Grayscale. Next, (I believe) the SEC will lose to Coinbase. The SEC claims that Coinbase has operated its crypto trading platform as an unregistered broker.

I have no background to give legal opinions and can't intelligently comment on the dispute, but I don't think Gary Gensler's record has momentum going in his direction.

If Coinbase defeats the SEC, this will eliminate another overhang from overly cautious investors. It will also provide free marketing for Coinbase, which should help the COIN price.

Reason 6: High fees and transaction costs. Coinbase will benefit from its massive profit margins. If I wanted to purchase $1,000 worth of Bitcoin on Coinbase, the fee would be $14.68 (nearly 1.5%). There is also a 1% spread on the price I pay for the Bitcoin. This means that Coinbase will make nearly 2.5% from this trade.

This same $1000 trade on Kraken has a fee of $1.60, and it trades at the current advertised price on CoinGecko. I know this, but did you? I'd rather get an extra $23 worth of Bitcoin. But as a Coinbase investor, I'm happy to benefit from people not paying attention to fees and spreads.

The spreads that Coinbase charges on certain altcoins are even higher. Coinbase eliminated Coinbase Pro, which offered a lower-cost trading experience. Binance is gone from the US, Kraken's platform is less popular, and the user interface isn't as polished as Coinbase's.

Retail hasn't even returned to crypto, and the transaction revenue for Q1 2024 is already trending 50% higher than Q4 2023. Think of how bullish this is for COIN in 2024 and 2025.

Reason 7: ETH ETF

What if an ETH ETF gets approved in 2024? Who do you think most ETF providers will choose to custody their ETH? And who will collect more custodial fees? You guessed it- Coinbase.

ETH has the bonus of earning staking income. I can't imagine Coinbase not getting a piece of the staking action for providing the service. This could add another massive revenue stream.

If an ETH ETF gets approved, isn't it logical to think an XRP, Solana, or Chainlink ETF get approved in the future? This further strengthens the narrative for owning COIN stock.

Reason 8: Coinbase has an all-star executive team with a winning track record. Many great founders are also great CEOs. They typically have more interest than making some money and cashing out. Think of leaders like Steve Jobs, Bill Gates, Jeff Bezos, and Elon Musk. These guys made billions and continued working on their passion. It inspires confidence that Brian Armstrong has been the CEO of Coinbase since day 1.

Coinbase's leadership team made great strides during this last bear market. Previously, 95% of company revenue came from transaction fees. They have strengthened with custody, derivatives, staking as a service, and interest-bearing reserves from USDC. Further, in 2023, Coinbase reduced its headcount by nearly 25% and lowered its expenses by nearly 50%!

They aren't complacent and capitulating to the SEC, and Coinbase has been supportive of creating clear and transparent crypto regulation. They have a significant war chest for funding candidates, which, unfortunately, requires a company to remain on top.

Further, Coinbase created its decentralized chain in 2023- BASE. This low-fee chain currently has one of the highest amount of assets locked. BASE is also a frontrunner in the decentralized social space. BASE may be an easy way to onboard retail into decentralized finance and keep them in the Coinbase ecosystem.

With such an impressive history in a brand-new space, can you think of a better place to gain exposure to the growing crypto industry?

Reason 9: Analysts don't have any love for Coinbase. The average recommendation by analysts today is a hold on COIN stock. The stock just went up 400% in a year, and there's no single outperform rating on it!

Either the analysts are corrupt or stupid, or I am missing something big. Meanwhile, stocks like Plug Power have an outperform rating and were down 70% in the past year.

At some point, the analysts must adjust their outlooks or risk looking more foolish if Coinbase continues crushing the market. Any upgrades will positively impact the stock and influence the other clowns (I mean analysts) to increase their ratings.

Reason 10: If the crypto market cap grows, the Coinbase market cap should also grow. As the value of crypto increases, it will lead to more money entering Coinbase's coffers. Transaction volumes will increase, the value of assets under custody will increase, and the stablecoin market cap (and interest) will increase.

More retail traders will trust Coinbase and pay the exorbitant fees as they see their Bitcoin ETF increase in value. Next, they will want to buy riskier altcoins that can be purchased easily on Coinbase.

It also doesn't hurt that Coinbase has approximately $1B in crypto on its balance sheet. The next two years are Coinbase's opportunity to shine and catapult itself much higher in investors' eyes. A 400% increase in 2023 should have caught attention, but imagine the impact of another 400%+ increase in 2024!

Part 3- Risks and threats to COIN stock

As a COIN holder, imagining and talking about everything Coinbase has going for it is fun. However, like every other investment, some risks and pitfalls could push COIN off its current trajectory. Here are the main risks I see.

1. Regulatory risks: If the SEC wins its lawsuit, this could impact Coinbase's revenue streams and public image. This could also reduce investor confidence in the long-term Coinbase narrative.

2. Black Swan or Recession: We could have a major pullback or a black swan event that will hammer the entire stock and crypto market. I don't imagine that Coinbase would be unscathed.

3. New Competitors: FTX may re-establish itself. Retail may opt to pay lower fees on Kraken. Or Square or a new competitor will enter the space and challenge Coinbase in the US market.

4. The crypto market dives: Even if a recession doesn't hit, there is no law saying that the crypto market has to continue on its path higher in 2024. Crypto is a risky asset class, and owning COIN is riskier and more volatile than owning Apple stock.

5. The ETF cuts into transaction fees: What if the BTC and potential ETH ETFs do cut into retail trading fees? The margins on retail are much higher than the ETFs. The negative analysts may have a point on this.

Key Takeaways

If 2024 and 2025 turn into Wen Lambo years, Coinbase should do extremely well. In 2023, the crypto market cap doubled, and COIN's market cap quadrupled. Now that the company is profitable, has eliminated massive expenses, and their business has been effectively legalized, it opens the door to new highs and potential price discovery.

I'm a degen crypto investor, so my opinions are jaded. But, if I have to own a stock other than Apple or Tesla, Coinbase seems like one of the best options.

What do you think? Am I applying my rose-colored Apple Vision Pro's to Coinbase? Do you agree with the analysts? Have I missed some of the other catalysts or reasons to own COIN? Or am I missing some obvious risks that need to be addressed? Share your thoughts in the comments.

Also, my AI writer gets paid on praise. If you liked this article, please clap or share it. It took a lot of effort to add prompts to ChatGPT, and I hope you recognize and respect that.

I hold COIN and COIN options at the time of writing this article. I also plan on accumulating more.

This information should not be taken as investment advice. Digital assets like crypto and NFTs involve risk, so you should always perform due diligence before investing.

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