Throughout the first three months of 2023, Ark Invest's Cathie Wood has continued to load up on Coinbase Global (COIN 10.53%) stock. In February, Wood made huge buys of $9 million and $13 million, followed up by another $20 million purchase in early March. With each new purchase, Wood has reiterated her bullish stance on crypto.

When you peek under the hood at Coinbase, it's easy to see why. There are three key catalysts that have the potential to send this stock's valuation soaring. Let's take a closer look at each one.

1. The return of the retail investor

The starting point for the bullish case for Coinbase, of course, begins with the return of the retail crypto investor. While Coinbase managed to beat analyst expectations when it released fourth-quarter 2022 earnings, there were obvious signs that the world's second-largest cryptocurrency exchange continues to be hit hard by the collapse of the crypto market in 2022. Monthly users are still trending down, as is trading revenue. 

So that's why the surprisingly strong performance of Bitcoin (BTC 0.77%) in 2023 is so important. With the price of Bitcoin up nearly 70% so far this year, and people once again talking about the return of a bull market for crypto, that has to be music to the ears of Coinbase executives. A massive bull run rally is exactly the type of event that's needed to woo back all those users that Coinbase lost in 2022. 

2. New sources of revenue

In the meantime, Coinbase has shown surprising resilience in waiting out the tough times until the good times return. With trading volume and monthly users down, the company has been forced to find new sources of revenue. One that particularly stands out here is staking revenue, which is the money that Coinbase makes from offering crypto staking products on its platform. This figure is trending way up. In 2021, staking accounted for less than 1% of total revenue. But by the end of Q3 2022, it made up more than 10% of revenue. 

The big caveat here, of course, is that the Securities and Exchange Commission (SEC) has made staking a major issue in 2023. In February, the SEC levied a $30 million penalty against rival cryptocurrency exchange Kraken for its offering of staking products to investors, and strongly hinted that it would be cracking down on staking across the industry. In response, Coinbase has vociferously made the case that staking is not a form of security and should be fully allowed. On March 20, the company even went so far as to publish an 18-page rulemaking petition for the SEC explaining this point.

Person looking at a tablet with a computer monitor and keyboard on the desk in front of them.

Image source: Getty Images.

But even if the SEC puts the kibosh on staking, Coinbase may have figured out other sources of revenue. For one, there's subscription revenue, i.e., the subscription fees it charges for the use of products like Coinbase Cloud. And then there's also the international angle; the company is called Coinbase Global for a reason. It has been very aggressive in expanding worldwide, and shows no signs of slowing down. In March, Coinbase announced a new set of initiatives related to global expansion, including a new way for users to buy cryptocurrencies in Brazil.

3. New growth catalysts

Finally, there are the sorts of strategic moves that may not hit the company's bottom line anytime soon, but that could be vital to Coinbase's future growth. One of these is the introduction of Base, a proprietary Layer-2 blockchain for Ethereum (ETH -0.14%). Coinbase launched Base in coordination with Optimism (OP 2.22%), one of the most popular Layer-2 scaling solutions.

The current thinking is that Coinbase could eventually use Base as a sort of "gated community" for its institutional investor base, especially when it comes to offering new decentralized finance (DeFi) products. That could open up entirely new revenue streams for the company, since DeFi is one of the most important niches in the blockchain sector.

Risk factors

Coinbase still faces a significant amount of legal and regulatory risk. Every month, it seems, the SEC is announcing a new crackdown on some corner of the crypto industry. So before you buy Coinbase, you need to feel confident that this cryptocurrency exchange has done everything possible to insulate itself from this risk.

That's why I'm particularly impressed by Coinbase's tackling of this issue head-on. As noted above, Coinbase is going toe-to-toe with the SEC over staking. This shows not only how important this alternative source of revenue has become for the business, but also how the company is in front of major issues in the industry. Moreover, Coinbase recently launched Crypto435, which is a nationwide lobbying movement meant to encourage a crypto-friendly mindset among lawmakers. Coinbase is clearly playing the long game here.

Should you buy Coinbase?

The biggest momentum changer for Coinbase in 2023 has been the resurgence of Bitcoin. By some estimates, this is the most bullish investors have been about Bitcoin since it hit its all-time high back in November 2021. If this sentiment persists, it could finally lead to the return of users to the Coinbase platform, and that is going to have a major impact on trading revenue. 

For now, it's easy to see why Cathie Wood remains bullish on Coinbase. What's good for Bitcoin is good for crypto, and what's good for crypto is good for Coinbase. As a result, Coinbase -- which plunged a stunning 86% in 2022 -- appears to offer a surprising amount of value.