Cryptocurrencies were one of the hottest trends in 2021 as they made their way into individual investors' portfolios. A study published by the University of Chicago in July 2021 reported that 13% of Americans surveyed traded cryptocurrency during the 12 months prior, and while that is less than the 24% of Americans who traded stocks over the same period, it still shows that crypto is being adopted by more than a small niche group of investors.
However, deciding which cryptocurrency to invest in can be extremely difficult, and exchange-traded funds (ETFs) that track cryptocurrencies can sometimes charge egregiously high fees. For example, the Bitwise 10 Crypto Index Fund (OTC: BITW) charges a 2.5% expense ratio -- meaning it takes $25 for every $1,000 invested each year. This is much higher than traditional stock market ETFs like the Vanguard Total Stock Market ETF (NYSEMKT: VTI), which has an expense ratio of just 0.03%.
If you want to avoid these high fees, but aren't ready to invest directly into cryptocurrency, Coinbase Global (COIN 4.68%) might be a better alternative to dip your toes in the water. The company is the leading crypto trading platform for individual investors and traders, along with institutional investors. On top of that, the company's revenue is well diversified, making it a smart way to invest in this fast-growing industry. With its major growth and impressive profitability, Coinbase might be the perfect crypto play for you.
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The adoption is widespread
There are plenty of competing platforms, but Coinbase is the primary platform that serves day traders, long-term investors, and even institutional investors. In 2021, the company had 11.4 million monthly transacting users (MTUs), and a total user count of 89 million. Importantly, the company is gaining steam among institutional investors: Its institutional investor count jumped 50% year over year in 2021.
The company's high user count has led it to become one of the largest crypto platforms in the market in terms of its assets on the platform. The company had $278 billion in assets at the end of 2021, which is almost three times larger than Robinhood Markets (NASDAQ: HOOD), which totaled $98 billion by the year's end -- and that includes all of its assets like stocks and options -- showing just how dominant Coinbase is in the crypto industry.
It's not just Bitcoin
As the industry leader, Coinbase has benefited immensely from the major price growth in cryptocurrency, driven by Bitcoin and Ethereum.
Bitcoin Price data by YCharts
Coinbase has capitalized on this explosive growth, putting up jaw-dropping financial figures consistently over the past year. In 2021, Coinbase's revenue skyrocketed 545% compared to 2020 to $7.36 billion. What's even more impressive is that the company has been able to grow its profitability even faster. For the full year, its net income soared 1,025% year over year to $3.6 billion, while its free cash flow -- which primarily consisted of growth in custodial funds -- reached $10.7 billion over the same period.
What is critical about this revenue growth is that it is diversified across many different cryptocurrencies. The company made only 46% of its transaction revenue from Bitcoin and Ethereum activity in 2021, with the rest coming from other cryptos. This declined compared to 2020, when Bitcoin and Ethereum made up 56% of transaction revenue, and is significantly lower than other trading platforms.
Robinhood, for example, had 32% of its total revenue come from just one cryptocurrency, Dogecoin, in the second quarter of 2021. Severe reliance on trading activity from just one coin can result in top-line volatility and pose a risk to the business, similar to severe customer concentration. Therefore, it is good to see Coinbase's reliance on Ethereum and Bitcoin shrinking.
Why Coinbase is my favorite crypto pick
Coinbase thrives on trading volatility and price appreciation, both of which have declined in the first quarter of 2022. This could cause MTUs to fall from 11.4 million in 2021 to as low as 5 million in 2022. On the flip side, however, management believes MTUs have the potential to grow as high as 15 million for the coming year, showing how unpredictable the crypto space can be. In 2022, its average revenue per transacting user will likely drop to pre-2021 levels, meaning it could range anywhere from $34 to $55.
2022 might be a period of slower growth for Coinbase, but over the long term, it's looking to expand its platform -- along with its lead over competitors. The company is experimenting with a subscription service with access to commission-free trading and 24/7 customer support. Coinbase is also building a non-fungible token (NFT) platform, and it is even working on allowing users to create decentralized applications.
Coinbase is quickly becoming the one-stop shop for every service someone may need in the decentralized world. Shares trade at just 13 times earnings -- a steal for a company with the brand name and market leadership that Coinbase has. With that, its fast growth, and aggressive investments in its future, Coinbase looks like a great way to invest in cryptocurrency.
