The Nasdaq-listed crypto trading platform has begun offering stock trading to a limited group of users. It is now in direct competition with established brokerage firms Charles Schwab, Fidelity, and longtime rival Robinhood, which preceded the exchange in issuing stock and crypto trading.
Coinbase, founded in 2012 by Brian Armstrong, could soon expand its business into stocks after more than a decade of providing digital asset services. Stocks are a much different and heavily regulated market, one where Coinbase has little operating history, not to mention fierce competitors.
Armstrong revealed his ambition last year to turn the company into an "everything exchange," where its clientele can trade crypto, stocks, and participate in prediction markets.
Coinbase Lags Behind Robinhood in Stocks, But CEO Says Not By Much
Robinhood built its brand on commission-free stock trading before deciding to add crypto to its arsenal in 2018. According to business news outlet The Information, the two platforms have been competing for the same retail traders.
Robinhood’s shares surged 186% last year and outperformed Coinbase, whose shares fell 12% over the same period, despite a crypto-friendly administration in Washington that was expected to lift Coinbase’s valuation.
According to data from S&P Global Market Intelligence, Robinhood shares are trading at a price-to-earnings ratio of 48 based on expected earnings over the next year, while Coinbase’s ratio stands at 41.
The bitcoin custodian’s share price had been climbing for much of last year until October, when the crypto market suffered its biggest slump since the collapse of FTX in 2022. Since the market has yet to fully recover, Coinbase’s shares have yet to bounce back to its post-IPO highs.
Crypto accounted for about 20% of Robinhood’s revenue in the third quarter of last year, giving it a buffer when digital asset trading cooled down. Coinbase, on the other hand, still derives the bulk of its revenue from crypto-related activity and is vulnerable during market downturns.
“If there’s a crypto winter, they’re not going to be suffering from it as much as Coinbase will,” said Dan Dolev, equity research senior analyst at Mizuho, who has a buy rating on Robinhood and a neutral rating on Coinbase.
Coinbase and Armstrong Are Playing the Long Game on Tokenized Equities
According to Armstrong, Coinbase is not late to the stocks party because it has a long-term bet on traditional finance meeting blockchain technology in the middle. In a recent interview, he propounded that Coinbase’s crypto-first foundation would place it ahead when equities move onchain.
“We have deep crypto expertise. We have the most trusted brand in crypto. We’re storing more crypto assets than any other company. So I think what we’ll be good at is being the bridge between traditional finance and crypto, and then getting tokenized equities to really take off,” the CEO surmised.
Coinbase’s stock trading now is much similar to other online brokerages, but Armstrong expects stocks will soon be issued natively on blockchains. However, since such tokens seem more like derivatives than true equity issued onchain, several companies are against tokenizing their equities.
“I think the most interesting offering is a tokenized asset, where it’s truly one-to-one represented underneath, and it gives you the rights of that asset, whether it’s dividends or voting,” Armstrong said. “There’s a lot of work to be done to figure out the details of that with the SEC and other people. It’s record keeping, rules.”
Pulling Support for the US Banking Committee’s Market Legislation Proposal
Crypto executives and lawmakers are still debating the Clarity Act, a legislation intended to create a framework for integrating crypto into the US traditional financial system.
The bill’s markup was meant to be presented on Thursday, but some crypto firms like Coinbase pulled back their support and forced the hand of the Senate Banking Committee to postpone its unveiling.
As reported by Cryptopolitan, Armstrong said on Wednesday that Coinbase would withdraw its support for the bill after some last-minute changes were made to the draft, which was followed by the cancellation of a planned markup by Republicans on the committee.
Asked whether Coinbase’s actions had permanently damaged the bill’s prospects, he said many in the crypto industry shared Coinbase’s objections.