🥛 The bull case for Coinbase 🐂

GM, this is Milk Road PRO, the weekly newsletter that helps you to think in decades (not years).

Coinbase to $1 trillion is a ridiculous statement.

Why? Because we’ve never had a public finance company reach $1 trillion in market cap

• JP Morgan, the highest valued bank in the world, sits at $700 billion

• Visa, the highest valued payments company in the world sits at $670 billion

• PayPal, the highest valued fintech company sits at $70 billion, though it did reach $362 billion at its peak back in 2021.

But what if you combined a Bank, a payments company and a fintech company all into one?

That’s Coinbase, a new-age financial services company unlike anything that has existed before it.

This was the original vision of PayPal, a finance company native to the internet. 

It had a promise of revolutionising the financial system. However, it never really achieved its promise as it was held back by the traditional financial rails it was built on.

You could think of PayPal’s failures similar to putting an EV battery in a gas car – it’s a band-aid approach.

Coinbase on the other hand is trying to “upgrade the financial system”. It’s a finance company not only native to the internet, but also the blockchain. 

They are building for a future world where money doesn’t have borders, value moves at the speed of light and financial services are available to everyone across the globe.

Coinbase is building a financial services company from first principles, similar to how Tesla built electric and autonomous cars from first principles - allowing it to become the most valuable car company on the planet.

At the time of this writing, Coinbase sits at just a $51 billion market cap. But $1 trillion doesn’t seem that ridiculous if they can succeed at their goal of rebuilding the financial system.

This report is not just going to share my bullcase for $COIN, it’s also going to be a masterclass on:

• How the most valuable companies in the world just keep getting bigger

• How global finance is changing right in front of our eyes

• How the crypto world is evolving to go mainstream

• How Coinbase is positioned to be front and centre of all of this

Of course, Coinbase has a long way to go to reach $1 trillion - there’s a lot that needs to go right for this to happen (it’s nowhere near a guarantee).

But before I get into looking at Coinbase’s numbers and breaking down their business, let’s first zoom out, and look at the bigger picture. 

Let’s try to understand the path that Coinbase is on and what they need to do to reach that 1 trillion number.

TRILLION DOLLAR INTERNET COMPANIES

Over the last 30 years, the internet grew from just a few niche users to more than 5.5 billion users today.

During that time, only a few companies not only helped onboard the world online, but have remained relevant up until today.

Apple, Google, Amazon and Microsoft are 4 of them.

It should be no surprise that each of these companies are valued at more than $2 trillion today, providing some of the best returns for a stock in history.

The reason for this is not because these companies have 1 good product that has lasted the test of time. It's because they’ve consistently built, rebuilt or bought great products as the internet was adopted in various ways.

These companies managed to stay relevant from the personal computers days, to the mobile era, the social era and are once again in position to dominate the AI era too.

These companies did an incredible job at remaining at the forefront of one of the greatest technological revolutions of our lifetime: the internet.

To paint the picture a little more clearly, let’s look at Apple’s Journey:

• Apple started with personal computers.

• They then realized that the first big use case for the internet was downloading music, so they created the iPod and iTunes.

• As the technology improved, they later self-disrupted both of those products with the iPhone and Apple Music.

• They also realized more people would want to create applications on the internet, so they built the app store to become not just an app, but a platform with distribution.

• They also realized that apps and people will need to store much of the things they do online, so they created iCloud.

• Then technology became so good that you could start to put the internet into everyday things, so they created the Apple Watch.

The list goes on and on with products that Apple has today which enable millions of people around the world to access and utilize the internet. 

Here’s a short list of Apple products that generate more than $1 billion in annual revenue: 

• App Store

• Apple Music

• iCloud 

• Apple Pay

• Apple TV+

• iPhone

• iPad 

• AirPods

• Apple Watch

• HomePod

• Macbook

• iMac

Apple doesn't just create great products though, they find strategic ways to integrate each of them together to not only make the UX of using the internet better, but also to build a strong moat across their products, both from a user and a developer standpoint.

For example, the App Store has pricing power (charging 30% on all payments) because Apple owns the iPhone (aka distribution). 

Another example is Apple AirPods – they have pricing power because they have seamless connection with iPhones and Macbooks, whereas other bluetooth headphones do not.

Apple has built an ecosystem with incredible network effects, allowing them to continue to remain relevant in whichever direction internet adoption takes. 

This is how you build a trillion dollar company.

I could share similar playbooks from Google, Microsoft and Amazon as well.

TRILLION DOLLAR CRYPTO COMPANIES

Today, the online world is migrating to the onchain world, a new technological revolution that will result in billions of users and trillions worth of assets onchain. 

While the internet was about upgrading information and communication, crypto is about upgrading the financial system.

Companies who follow a similar playbook mentioned above have an opportunity to become the largest financial companies in the world, dominating any financial company before it (the same as the big 4 did to companies preceding them).

Coinbase is the one company right now in crypto that appears to be following in Apple's footsteps in terms of how to capitalize on this technological revolution.

Let’s look at Coinbase’s journey so far, since being founded in 2012.

• Coinbase started as an exchange, converting dollars to Bitcoin (the first use case in crypto).

• As smart contract platforms (SCPs) like Ethereum were created, Coinbase expanded to become an exchange for more than just Bitcoin, listing additional blockchain tokens and then the tokens of apps built on top of the blockchains.

• They then understood that the future of crypto is onchain, so they launched Coinbase Wallet and Coinbase Commerce, so users and companies can move and trade assets permissionlessly (self-disrupting their centralized exchange business).

• They also saw that stablecoins were the first big use case built on SCPs, so they acquired a stake in and strong partnership with Circle ($USDC).

• Coinbase then realized they should own their own blockspace and they could tap into the network effects of Ethereum, by launching their own layer 2, Base.

• Now Coinbase is positioned similarly to Apple with the appstore, by building a platform (Base) and using their distribution from their Coinbase App to grow it. By funding app development on Base, they are creating an innovation flywheel within the Coinbase ecosystem.

• Their latest move has been to integrate the Coinbase app with the onchain apps and use cases built on Base (Morpho, $cbBTC, onchain KYC credentials, Uniswap), furthering the moat of their products. 

Of course, it’s still early days for Coinbase, but after 13 years in business it’s very clear that they are using the same playbook as Apple. 

Build/rebuild/purchase products that remain at the forefront of a technological revolution and integrate them together to build a moat and grow stronger network effects.

The reason this playbook works so well is that when you have numerous products, not only can you generate more revenue per user, but you also have leverage in the market for pricing.

For example, Apple doesn’t need to generate revenue from its web browser Safari, it can remain free and without ads, and instead generate revenue from the hardware (iPhone, iPad, MacBook). 

It can also use the data from Safari to create better products like Apple Intelligence (ok, ok – ‘soon to be better’).

On the other hand, they can also charge more for certain products, because of its superior UX and clean integrations into its other products (ie. the AirPods example mentioned above).

This leverage allows Apple to compete in any industry/product it chooses to step into.

Coinbase is heading down this same path and it’s already working. 

Just like Apple, everything Coinbase touches turns to Gold. Here’s a quick highlight reel of Coinbase products so far:

• Coinbase is the largest crypto custodian in the world with $404 billion in assets under management (almost 15% of the entire crypto market), reported in their Q4 2024 earnings.

• Base was the fastest growing L2 in 2024 (and one of the fastest growing blockchains entirely).

• $USDC was the fastest growing major stablecoin in 2024.

• Coinbase is the single largest node operator on Ethereum (11.42% of all staked $ETH is w/ Coinbase).

• Coinbase wallet is one of the most used self-custody wallets in the industry.

As the onchain world continues to develop, offering new breakthrough use cases and onboarding billions of new people, it’s clear that Coinbase is well positioned to capitalize on that, if not be the innovator who leads it.

I guess I should also note here that in Coinbase's Q4 2024 earnings report they reported having $8.5 billion in cash on their balance sheet. 

This of course could be used to acquire more products they believe could be the next big thing in crypto (just like how Google acquired YouTube, or Microsoft acquired OpenAI).

Before I get into some of Coinbase’s revenue numbers, I first want to share one final thought about Coinbase and how it fits in the future of crypto.

THE FUTURE OF FINANCE

Some in crypto believe that the purpose of blockchains is to remove centralized companies entirely, moving everything from social to finance into a decentralized, self-custody and permissionless internet.

This has led some to believe that centralized exchanges like Coinbase will ultimately head to 0. 

While this world sounds great in theory, the reality is that it was never going to happen this way.

The wonderful thing about decentralised, permissionless blockchains is that they offer users something they otherwise would have never had in the financial system: choice.

A choice to custody their own assets digitally and manage them how they please, or a choice to have an institution custody and manage them on their behalf. Previous to blockchains the only choice (other than holding cash) was to trust the institutions.

For the crypto natives that believe in the crypto ethos and take their assets seriously, they will choose to custody their own assets and manage their own finances. 

But that is a VERY small subset of the world currently (less than 1%).

For the other 99% of the population, they will choose institutional adoption for a few reasons:

1. They have no interest in custodying their own assets (that’s more risky than an institution doing it for them).

2. When trading and managing their assets, they want the good UX offered by exchanges, banks, fintechs, etc.

3. They simply don’t think about finances at all and just need a place to hold their savings / use a credit card.

On the institutional side, there are various regulatory and legal reasons why they need another institution to custody their assets rather than doing so themselves.

So the reality is that both the self-custody onchain world and the custodial onchain world are going to grow significantly over the coming years, and Coinbase is building in both of these worlds.

On the custodial side, Coinbase manages 15% of the total crypto market cap on behalf of retail and institutions. 

To put this into perspective, Microstrategy uses Coinbase to custody their Bitcoin, so does Blackrock, Fidelity and 95% of crypto ETF providers – hell, even the US government uses Coinbase to custody its Bitcoin. 

Coinbase dominates the crypto custodial world today.

On the self-custody side, Coinbase is also beginning to take over market share.

Today Base has 55% of all active addresses on L2s! 👇

…and 60% of all revenue generated on L2 blockspace. 👇

But what’s even more exciting about what Coinbase is doing is how they are beginning to blend the two worlds together. 

This was first seen earlier this year with the integration of Morpho on Base into the Coinbase app.

As I mentioned above, a large % of the population is likely never going to download a self-custody wallet, bridge over their assets, connect into a DeFi app and take out a loan (for example).

But rather than trying to bring the users to DeFi, Coinbase is bringing DeFi to the users. 

Coinbase app users can now take out a loan on their Bitcoin using Morpho, directly inside the app. No wallet, bridging or connecting necessary.

In the backend, however, Coinbase actually creates an onchain wallet for the user via their smart wallet infrastructure, effectively bringing users onchain without them even knowing.

Coinbase is taking the benefits of the onchain world and bringing it to the average offchain user in a simple UX. I believe that this is where the bulk of mainstream adoption in crypto comes from and Coinbase is clearly leading the charge here.

Ok now that we understand the bigger picture of what Coinbase is trying to do to capitalise on the onchain revolution, let’s look at how well they are executing on this playbook today and what they need to do to become a trillion dollar company (as well as how we can capitalize on it).