Analysis: Is Coinbase the biggest winner from the Ethereum ETF?
Could it rival traditional brokers like Schwab and Fidelity, which custody over $3T each
Gm Fintech Architects —
Today we are diving into the following topics:
Summary: We discuss Coinbase's strategic position as the biggest beneficiary in the crypto ETF market. With $193 billion in digital assets under custody, Coinbase stands out due to its regulatory compliance and comprehensive service offerings. We analyze the company's custody economics, noting how its fees have evolved and the potential revenue from increasing ETF inflows. Despite fees currently contributing a small percentage of Coinbase's revenue, the potential scale of ETFs could significantly boost this segment. As crypto becomes a primary investment instrument, Coinbase could eventually see $2T+ in custodied assets, comparable to major traditional brokers like Schwab ($4T) and Fidelity ($3T).
Topics: Coinbase, Coinbase Custody Trust Company (CCTC), New York Department of Financial Services (NYDFS), FTX, Sam Bankman-Fried, Prime Trust, Schwab, Fidelity, Grayscale, Ethereum, Solana, Bitcoin.
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Long Take
The Winner of the Crypto ETF Game
The ongoing Game of Thrones battle between the SEC and the crypto industry has left many players bloodied or dead. Everyone is watching the price. But in the midst of the carnage, one kingdom stands to benefit the most.
Spoiler — it’s Coinbase.
Coinbase has been in the custody business for over 12 years — securing $193 billion in digital assets, including $101 billion in institutional assets. Coinbase Custody Trust Company, LLC (CCTC) operates as a fiduciary under New York state law, regulated by the New York Department of Financial Services (NYDFS), and has undergone SOC 1 Type II and SOC 2 Type II examinations to confirm internal processes and controls.
Client funds are legally segregated and protected — remember how FTX and Sam Bankman-Fried’s backdoor to steal customer funds as collateral — being bankruptcy remote and covered by substantial commercial crime insurance, which shields assets from theft and other security risks. Coinbase’s has also integrated trading, financing, and custody services for over 400 assets across 38 blockchains.
Coinbase also happens to be a publicly traded company with a much larger revenue base than custody-only. A number of independent crypto custodians have had trouble maintaining an independent business, or even staying alive after operational and economic malfeasance. See for example, Prime Trust.
If we look at the Coinbase economics in more detail, we can see two segments — transaction revenue deriving from money movement, and subscription and services revenue deriving largely from money-at-rest. Most of the transactional revenue is from consumer trading, in large part because consumers end up paying a much higher price than large institutional investors.
Within the money-at-rest category, the largest value generators are stablecoin revenue and interest income, which can be largely interpreted as “yield” on cash. This category has been growing meaningfully as rates have gone up and crypto trading has gone down.
But if we squint at the P&L, there is a line item called “custodial fee revenue”. This is the business that functions as the custodial infrastructure for institutional investors, including doing the work of supporting ETF issuers with underlying collateral. As the Bitcoin and Ethereum ETFs — and eventually all the Solana stuff too — scale in size, Coinbase shall grow in tandem.
Let’s dive into a deeper analysis of custodial economics, and then take a look at the inflows from BTC and ETH and their impact.