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Coinbase rides bitcoin ETF frenzy to first quarterly profit in 2 years

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Coinbase Global (COIN) posted its first quarterly profit in two years as trading surged on a new wave of optimism about digital assets, marking a potential turning point for the largest US cryptocurrency exchange.

Investors cheered the news, sending the stock of Coinbase up more than 12% in after-hours trading. The stock is down 5% so far in 2024 as of Thursday’s close but has soared $180% over the last year.

Coinbase earned $273 million in profits during the fourth quarter, well above analyst expectations. It was the first positive quarterly earnings result since the fourth quarter of 2021, when the last crypto boom was still raging.

The surprising fourth-quarter performance lifted its full-year result to a net profit of $95 million.

Among the reasons Coinbase surged into the black: It attracted more traders to its platform and more clients for its subscription and services business. Total transaction revenue jumped 64% to $529 million.

It also benefited from a $121 million non-cash release that had been set aside for taxes along with $18 million gain from repurchasing debt.

Brian Armstrong, CEO of Coinbase, looks on during the Piper Sandler Global Exchange and FinTech Conference in New York City, U.S., June 7, 2023. REUTERS/Brendan McDermid

Brian Armstrong, CEO of Coinbase. REUTERS/Brendan McDermid (REUTERS / Reuters)

What helped drive more people to Coinbase’s platform was a surprise market rally triggered by speculation that the Securities and Exchange Commission might grant approval for spot bitcoin exchange-traded funds.

The ETFs would allow investors to get exposure to the world’s largest cryptocurrency without having to own it, potentially widening the mainstream appeal of digital assets.

The SEC eventually granted those approvals in early January, and Coinbase served as custodian for eight of the 11 ETFs. The company can benefit by working with ETF issuers through its custody, prime trading and trade settlement businesses.

Bitcoin (BTC-USD) has since surged above $52,000, its highest point since 2021. It is still far from an all-time high of $68,789 set in 2021, a year it benefitted from a period of low interest rates and fiscal stimulus that put excess savings in the pockets of investors.

The market crashed in 2022 as rates rose and the giant crypto exchange FTX collapsed, before making its surprise comeback during 2023. Bitcoin rose more than 150% last year.

The bull case for Coinbase and the larger industry in 2024 is that many of crypto’s biggest problems are now officially in the rear-view mirror after the criminal conviction of FTX founder Sam Bankman-Fried and a guilty plea from Binance CEO Changpeng Zhao.

Coinbase still has some challenges, however. It is in the middle of a legal fight with the SEC, which sued the exchange last June for allegedly operating an unlicensed crypto securities exchange, broker and clearing agency, putting its future earnings at risk.

The company is choosing to defend itself in court and its CEO Brian Armstrong has been vocal about his disagreements with the SEC.

The company is also actively lobbying Washington for more clarity around how the crypto world is regulated.

“We remain confident the US will get this right, whether it comes from the courts creating new case law, Congress passing new legislation or ultimately the 52 million Americans who’ve used crypto voting in this upcoming election,” he said during a call with analysts Thursday.

“Crypto still needs to have its iPhone moment,” said Armstrong. “We’re hoping we can help make that happen.”

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.

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