Thanks to higher interest rates, general risk-off sentiment among investors, and a string of major industry failures, the cryptocurrency market ended 2022 at a value of $800 billion, compared to $2.2 trillion at the started of the year. And this has had some adverse implications for some of the most prominent enterprises in the industry. 

One such business is Coinbase (COIN -16.57%). The leading U.S. cryptocurrency brokerage and exchange operator posted revenue of $3.1 billion in 2022, down 57% year over year. And the company registered a net loss of $2.6 billion for the year. Even though the stock is up 68% so far this year as the overall industry gains investor interest once again, the shares are still down 83% from their all-time high set in November 2021. 

Coinbase's latest financials were hardly a surprise for anyone who follows the business. But there is one number that you might have missed from the announcement. Let's take a closer look.

Trying to diversify revenue streams 

Founder and Chief Executive Officer Brian Armstrong has long emphasized that he doesn't want his company to be overly reliant on its bread and butter of transaction revenue. In 2022, Coinbase generated 75% of its total sales from transaction fees. This is a huge moneymaker in good times, as in 2021, when crypto prices were soaring, and investors flocked to buy digital assets. But the opposite can be painful, as we saw last year when investors soured on the industry. 

With the realization that Coinbase's long-term viability relies on diversifying revenue sources, management's focus has been on building subscription and services revenue, which mainly includes staking rewards, custodial fees, interest income, and learning rewards. At first glance, investors would be happy to see that this segment grew revenue 53% in 2022 to $792.6 million. This was a bright spot in the earnings report. 

However, the year-over-year gain can be attributed entirely to interest income, which increased from $25.8 million in 2021 to $327 million in 2022. Coinbase earns interest for its participation in the ecosystem of stablecoin USD Coin, as well as on customer balances, so it's not a surprise that as the Federal Reserve aggressively hiked rates, businesses that own interest-bearing assets would see a rise in income. The issue, though, is that this isn't core to Coinbase's operations. And it's something that is outside of the company's control. As a result, shareholders should temper any excitement they have about Coinbase boosting its subscription and services segment and diversifying its revenue streams. 

It's also worth pointing out that blockchain rewards accounted for 35% of subscription and services revenue in 2022. Blockchain rewards primarily consist of staking, where Coinbase generates revenue from participating in various crypto networks' proof-of-stake protocols. The Securities and Exchange Commission recently cracked down on Kraken, a rival exchange, saying that the cryptocurrencies that are involved in staking are actually securities. Coinbase doesn't think that it's in violation of any rules and laws, and it believes that any increased regulation will be a benefit to the business. This is another risk factor to pay attention to. 

What should investors do? 

Anyone who is considering buying Coinbase shares must be bullish on the entire crypto ecosystem because the stock will only make gains if the overall industry does. With its leading position in the U.S., plus its improved standing as a supposedly safer crypto business in the aftermath of last year's high-profile blow-ups (like the FTX debacle), Coinbase could attract more user interest. 

And as the company potentially gains more users who trade on the platform or use the various other services, Coinbase will generate higher revenue. We've already seen how incredibly profitable the company can be. In 2021, Coinbase generated $3.6 billion in net income on $7.4 billion of revenue. This is a very lucrative business in good times. 

But investors must not only accept the regulatory uncertainty that comes with the cryptocurrency industry, but also the volatility and unpredictability of Coinbase's financial results on a quarter-to-quarter basis. If you accept these realities and you can adopt a truly long-term mindset, then owning Coinbase stock right now, at a historically cheap price-to-sales multiple of 4.3, could be a good idea.