Digital assets have experienced a landmark year as the market moves towards mainstream adoption.
The change has reduced the price volatility that was a major attraction for many investors, Bloomberg reported on Thursday (May 30).
As a result, Coinbase, the largest cryptocurrency exchange in the United States, has seen a decline in consumer trading volume and a potential shift in its revenue streams, according to the report.
Volatility in the digital asset market has decreased significantly recently. According to research firm CCData, the average volatility of digital assets has fallen from around 79% in 2021 to 57% this year, the report said.
The drop in volatility means fewer speculative traders, which is seen as a sign of market maturity, according to the report.
Coinbase, like other exchanges, relies on trading fees generated from cryptocurrency trading volume, but the report said the drop in volatility has led to lower trading volumes, impacting the exchange's revenue.
Coinbase's consumer trading volume in the first quarter of this year was $56 billion, down from a peak of $177 billion in the fourth quarter of 2021. The creation of spot bitcoin exchange-traded funds (ETFs) and the maturation of the overall market contributed to this decline in trading volume.
According to the report, to mitigate the impact of declining trading fee revenue, exchanges such as Coinbase are diversifying their revenue sources. Coinbase generated roughly one-third of its revenue in the first quarter of this year from sources other than trading fees. These sources include revenue sharing from the USDC stablecoin and revenue from the Base blockchain.
The firm also acts as custodian for most spot Bitcoin ETFs in the U.S. and is reportedly listed as the custodian for a spot Ethereum ETF that is expected to receive regulatory approval.
The report said that while Coinbase's trading fee revenue is expected to be lower than its 2021 peak, the company's overall outlook remains positive.
Net income is projected to grow 20x this year compared to 2023. The sustainability of the current bull market and whether Coinbase can maintain its spot market share will be key factors in determining the company's future earnings. Additionally, Coinbase's diversification efforts and role as a custodian of ETFs give the company the potential for earnings growth in the long term.
