Coinbase: Bitcoin Breakout A Positive Catalyst

Summary Coinbase (COIN) is positioned for strong Q3 earnings, benefiting from Bitcoin's breakout and increased trading volumes. COIN's platform profitability is set to expand, with alternative coins also seeing revaluation and growing institutional adoption. COIN now generates 88% of revenue from non-Bitcoin activities, reflecting diversification and reduced dependence on Bitcoin trading.

However, a rising Bitcoin price lifts the entire market, fueling transaction revenue growth for Coinbase. Shares trade at a forward P/E of 67. 7x, above the long-term average, but are nonetheless offering an attractive valuation and diversified crypto market exposure.

Coinbase Global, Inc. (COIN) is one of the leading cryptocurrency trading platforms in the market and the company is set to report a strong set of financials for its third fiscal quarter, in my opinion, amid a major break-out of Bitcoin (BTC-USD) to the upside and likely stronger trading volumes in digital currencies in general. While Bitcoin still dominates the holding mix of users and investors on the Coinbase platform, alternative coins have also seen a revaluation to the upside lately, suggesting that Coinbase is on track to report stronger earnings and overall improving platform profitability.

Coinbase is a proxy for the broader cryptocurrency market and I like Coinbase as a diversified play on this market and because of growing adoption of digital currencies. Shares of Coinbase have directionally tracked the Bitcoin price and any further price gains for the world's largest digital asset are set to lead to revaluation tailwinds for Coinbase as well. Data by YCharts Previous rating I reviewed Coinbase last in August of last year, which is when I rated the cryptocurrency platform a ‘ Strong Buy ’ amid robust trading momentum in major digital currencies at the time.

Since then, however, Coinbase's shares have declined a massive 40%, mainly due to a correction in the price of Bitcoin which has led the entire cryptocurrency market lower. In September, however, Bitcoin has seen a strong breakout to the upside, crossing above the $80,000 resistance level, which is set to boost the platform’s total trading activity in the third-quarter. Investors can therefore look forward to a strong third-quarter earnings release, which could help Coinbase narrow its YTD losses and move into a new up-leg.

Bitcoin breakout suggests improving platform profitability Coinbase has become progressively less dependent on Bitcoin trading over time as the company built out its services and added more cryptocurrencies to its trading platform. While Bitcoin price movement still acts as a thermometer of the overall health of the cryptocurrency market, Bitcoin spot trading has dropped significantly in importance for Coinbase over time: in fact, in the second-quarter, Coinbase said that it generated 88% of its total revenues from activities other than Bitcoin spot trading. Coinbase However, this is not to say that Bitcoin's breakout in Q3 doesn't materially matter for the Coinbase platform.

The main reason for this is that Bitcoin still dominates the overall cryptocurrency market with a dominance share of 58% and therefore leads the market directionally. CoinMarketCap Coinbase's revenue trend, in my opinion, is likely to have seen a major reversal in Q3 which is due to Bitcoin breaking through a previous resistance level at around ~$80,000. With Bitcoin prices surging this month (and reaching their highest level since January 2026), there is a considerable chance that Coinbase is going to beat low estimates, which appear to be dated and don't reflect the recent cryptocurrency rally in the digital asset market.

Data by YCharts In the second-quarter, the cryptocurrency marketplace generated $599 million in transaction revenues, showing a year-over-year decline rate of 22%. The majority of transaction revenues also still comes from retail traders which were responsible for $452 million (75%) of all transaction revenues for Coinbase in the second-quarter. In other words, if the Bitcoin price falls for a prolonged period, retail traders tend to lose interest and scale back trading.

Once the Bitcoin price shows signs of a revival, however, it is mainly retail traders that are driving Coinbase's growth and profitability. Coinbase Coinbase has seen a significant contraction in its transaction revenues specifically which account for the majority of revenues on the Coinbase platform. In the second-quarter, the cryptocurrency marketplace generated $599 million in revenues, showing a year-over-year decline rate of 22%.

The majority of transaction revenues also still comes from retail traders which were responsible for $452 million (75%) of all transaction revenues for Coinbase in the second-quarter. Coinbase However, the revenue trend, in my opinion, could have seen a major reversal which is due to Bitcoin breaking through some previous resistance level at around ~$80,000. Coinbase is set for a significant earnings recovery in the third-quarter, and potentially in Q4, if the current momentum in the cryptocurrency market is sustained in the fourth-quarter.

As positive catalysts for Coinbase I see specifically: 1) Broadening crypto market momentum with Bitcoin making new highs which potentially may attract retail and institutional investors back to the digital asset market 2) Coinbase posting strong third-quarter results amid a resurgence of trading in Bitcoin and other cryptocurrencies may result in significant EPS estimate outperformance 3) Growth in non-trading revenues such as stablecoin-related revenues and custodial services for retail and institutional investors could drive further gains in the future. Earnings estimates for the third-quarter have not yet been updated and take into account the likely surge in trading revenues in Q3'26. Currently, analysts have made 17 EPS estimate downside revisions in the last ninety days which means the bar for Coinbase to beat expectations (of a $0.

22 per share loss) is extremely low. Coinbase’s valuation The cryptocurrency trading platform is currently valued at the forward price-to-earnings ratio of 67. 7x, which is significantly (67%) above the company’s 3-year P/E ratio of 40.

6x. However, Coinbase is set for major earnings growth related to the recent upsurge in major cryptocurrencies like Bitcoin, Ethereum (ETH) and others, which is set to boost earnings for Q3. Most importantly, investors now expect Coinbase to return to full platform profitability next year while current year estimates call for a loss of $2.

03 per share. I see long-term EPS possibilities in the range of $8-9 annually for Coinbase, to be derived in a market that is seeing new all-time highs for major cryptocurrencies. In 2021, the ultimate boom year for cryptocurrencies, Coinbase reported total diluted EPS of $14.

50 for Coinbase, so my estimate range may actually be considered conservative. Applying an $8-9 EPS figure to Coinbase's historical P/E ratio of 40. 6x implies a fair value range of $325-365 per share, leaving significant upside on the table for investors seeking cryptocurrency exposure.

Data by YCharts Risks with Coinbase The biggest risk for Coinbase, as I see it, relates to the cyclicality of the underlying digital asset market as well as rapidly changing sentiment shifts that can have a drastic effect on Coinbase’s platform profitability and earnings in any given year. What would change my mind about Coinbase is if it were to report weak third-quarter earnings (missing EPS and revenue estimates) or if the cryptocurrency platform were to see disappointing results from its trading segment specifically. Final thoughts Coinbase is a strong play on the cryptocurrency market and the company is set, in my opinion, for a significant expansion of its platform profitability given Bitcoin’s breakout to the upside in the third-quarter.

In my opinion, Coinbase is a very compelling bet for investors who seek diversified exposure in the cryptocurrency market in general but who don’t want to own any specific digital asset, like Bitcoin or Ethereum, outright. Shares of Coinbase are attractively valued, in my opinion, although the rise in the prices of major cryptocurrencies has already been reflected in Coinbase's valuation (its stock price has risen from about $145 in August to $190 in September, reflecting price gains for Bitcoin). With a strong third-quarter earnings report in the cards, however, I believe investors still have an opportunity to take a potentially lucrative position in the Coinbase platform at this time.