Shares of cryptocurrency stock Coinbase Global (COIN -2.88%) have dropped over 85% from their peak in late 2021 as the crypto market has imploded. Trading is down, prices are down, and there's concern that margins will be under pressure all year. 

As terrible as the operating conditions are today, Coinbase continues to build for the future. And if it can execute on plans to become more than just an exchange, this could be one of the biggest winners in the future of crypto and Web3

The exchange problem

Coinbase has made its money by being a popular crypto exchange, particularly in the U.S. But there are other exchanges with lower fees, and there will naturally be pricing pressure for Coinbase to lower transaction costs for all users. Combine that with the decline in transaction volume overall and you have a recipe for declining revenue and margins in 2022. 

In the first quarter of 2022, retail trading volume plummeted from $177 billion to $74 billion sequentially. A vast majority of revenue is generated from retail traders, so this was the biggest reason for the decline in revenue and earnings. 

There's no easy fix to the exchange problem. Margins will continue to be squeezed and retail traders may not be coming back anytime soon. So Coinbase needs to look elsewhere for revenue. 

Business is where the money is

Coinbase may be known for being a popular exchange for traders, but the future of its business may be business services. Subscription and Services revenue jumped 169% in the first quarter of 2022 versus a year ago, while transaction revenue dropped 34%. 

There are a number of opportunities like staking services, which take a 25% commission for helping users stake cryptocurrencies. Custodial fees were also $31.7 million, and I think that could grow as the company offers security products to users. Coinbase is looking to combine its app and wallet into an easier to use platform, which could make onboarding users easier. 

COIN Revenue (Quarterly) Chart

COIN Revenue (Quarterly) data by YCharts.

Cloud services could be a big part of the company's future as well as developers look to build faster in Web3. There's no point in building wallet integrations, commerce tools, or trading capabilities when they're available through Coinbase Cloud. This could be a cloud giant for Web3 companies. 

For example, Coinbase is one of the providers of Shopify's crypto payments platform, and the same tools are available to anyone. If you think commerce is going to be disrupted by "crypto rails" -- or cryptocurrency being the path the funds move from a customer to a merchant -- rather than credit or debit cards, Coinbase could be a huge player.

Crypto and NFTs will someday be invisible

If I had to sum up the case for Coinbase long term, it's that no company could make cryptocurrencies and NFTs invisible better than Coinbase. As someone told me at the world's largest non-fungible token conference NFT.NYC, "this should be a non-event for most people." 

What does that mean? It means that users shouldn't have to worry about remembering security phrases that could compromise their accounts or wallet integrations or signing nefarious transactions in Web3. They should be able to feel comfortable using Web3 tools, and the technical details should fade into the background. 

I think this is what we're seeing with Coinbase integrating more of its app and wallet products together, introducing an NFT marketplace, and having "Pay with Coinbase" available to merchants. When concert tickets move to the blockchain, it'll be a nonevent because the tickets will simply go to your Coinbase App. Or when a coffee shop sends you a loyalty NFT, it may sit in the background of your Coinbase App, invisible to you because it lives on the blockchain but can be hidden from sight. 

Focus on the next billion users

Coinbase is building the tools to onboard the next billion people to crypto, NFTs, and Web3 more broadly. That's what the company is doing in this bear market, and if it succeeds, the company could come out of this stronger than ever.