Cryptocurrencies/Coinbase: Revenues are rising, but Bitcoin's risky asset status is hurting

Crypto evangelists sometimes claim that digital assets like Bitcoin are an investment hedge whose performance is decoupled from other asset prices. Russia's invasion of Ukraine has torn a new hole in this theory. Fear has pushed gold prices to their highest levels since last summer. However, Bitcoin trades like any other risk asset.

On Thursday, Coinbase reported boastful fourth-quarter results that are already looking dated. The US-listed crypto exchange exceeded expectations, reporting revenue of $2.5 billion - up from less than $500 million in the same period in 2020.

But Coinbase is a lagging indicator for crypto markets. Falling prices in the current quarter mean the company expects transaction volumes to decline, dragging down subscription and service fees. The number of active traders, over 11 million at the last count, is falling.

The knee-jerk retreat from risk across all markets shows that crypto was no different when it became a center for pure speculation. There are fears that the combination of inflation and war could trigger another crypto winter. Bitcoin reached $69,000 in November. It is now trading below $39,000.

Coinbase CEO Brian Armstrong dismisses these long-term fears. He may be right. There is reason to believe that the downturn will not be as severe or long-lasting as the cold of 2017. More institutions are holding cryptocurrencies and there is greater integration with mainstream financial services. Billions in venture capital funding are available to invest in the ecosystem.

For Coinbase, however, the price drop should be an incentive to accelerate other services. It already faces competition from Robinhood's zero-commission fees on crypto trades and is still looking for common ground with regulators. Last year it scrapped plans for a crypto lending product after the Securities and Exchange Commission warned of legal action.

Alternatives are required. In October, Coinbase announced it would launch a marketplace for non-fungible tokens – NFTs. This has yet to appear, leaving the field open for OpenSea. Coinbase remains reliant on crypto trading fees for 92 percent of revenue. Until this changes, the stock will continue to fluctuate with crypto prices.