Coinbase Crypto Investment And Bitcoin Holdings

Crypto analytics. Pixabay image.

Coinbase Global (NASDAQ: COIN) is a leading cryptocurrency exchange platform that allows users to buy, sell, and store various cryptocurrencies.

Although Coinbase is primarily a service provider, it has invested in cryptocurrencies and accumulated a decent number of crypto assets.

This article provides regular updates on the current value of the crypto assets owned by Coinbase, offering an insightful view of the performance of these assets over time.

Let’s take a look!

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Definitions

To help readers understand the content better, the following terms and glossaries have been provided.

At Cost: The actual cost of producing or acquiring a product, asset or service.

Crypto Asset: Any digital asset built using blockchain technology, including cryptocurrencies, stablecoins, and security tokens.

Fair Value: Fair value or fair market value is the estimated price at which an asset is bought or sold when both the buyer and seller freely agree on a price.

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Investment In Crypto

Coinbase stated in its annual reports that its crypto investment policy allows it to invest up to 10% of its net income into a diversified portfolio of crypto assets.

Coinbase also said that it does not use customer crypto assets as collateral for any loan, margin, rehypothecation, or other similar activities without their consent, to which Coinbase or its affiliates are a party.

In other words, Coinbase will never use customers’ funds or any assets for investment in cryptocurrencies without their consent.

Over time, Coinbase has amassed a sizable amount of crypto assets for investment and operational purposes.

As of 3Q 2023, Coinbase’s crypto holdings were valued at US$400 million at cost or US$674 million at fair market value.

Coinbase crypto investment is categorized into investment and operational.

Within the investment category, Coinbase said that it views its crypto asset investments as long-term holdings and does not plan to engage in regular trading of crypto assets.

On the other hand, Coinbase uses the crypto holdings for operational purposes to fulfill customer transactions and corporate expenses denominated in cryptocurrency.

You may have noticed that Coinbase’s crypto assets can be measured in two ways: at cost and fair value.

At-cost refers to the actual cost of acquiring the crypto assets at the time of purchase. This is the value that is presented in the balance sheet after accounting for any asset impairment if there is any.

On the other hand, fair value is based on quoted market prices for one unit of each crypto asset reported on its platform at 11:59 pm Coordinated Universal Time (UTC) on the last day of the respective period multiplied by the quantity of each crypto asset held, according to Coinbase.

One major issue with Coinbase is the lack of investment in cryptocurrencies, especially when compared to its market capitalization of US$25 billion.

In fact, the total fair market value of its crypto assets as of 2023 was less than US$1 billion.

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Total Crypto Assets At Cost

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As shown in the chart above, Coinbase’s crypto assets were worth US$393 million as of 3Q 2023 at cost.

This figure has been relatively unchanged over the last several quarters.

However, it was a significant decline from the US$756 million recorded in 1Q 2022.

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Total Crypto Assets At Fair Value

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At fair value or market price, Coinbase’s total crypto holdings were worth US$674 million as of 3Q 2023, roughly 70% higher than its cost value.

However, compared to the peak figure of US$1.4 billion recorded in 1Q 2022, the latest valuation of Coinbase’s crypto assets was 50% lower.

A primary concern is that Coinbase has not invested enough in cryptocurrencies, considering that its total crypto holdings’ fair market valuation was not even worth US$1 billion as of 2023, while the company’s market cap was already worth US$25 billion.

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Crypto Asset At Cost To Long-Term Asset Ratio

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As shown in the chart above, Coinbase’s total crypto holdings at cost accounted for roughly 11.6% of its long-term assets as of 3Q 2023.

This figure has remained relatively stable in recent quarters but is notably lower than the 19% reported in 1Q 2022.

At a ratio of only 11.6% of the long-term assets, Coinbase’s investments in cryptocurrencies were probably too low.

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Crypto Asset At Fair Value To Long-Term Asset Ratio

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At fair value, Coinbase’s total crypto holdings accounted for 20% of its long-term assets as of 3Q 2023, nearly double the ratio of its cost figure we saw earlier.

Similarly, this ratio was considerably down from the peak ratio of 40% recorded in 4Q 2021, primarily driven by the decline in prices of cryptocurrencies.

Even at fair market value, Coinbase’s total cryptocurrency holdings were worth only 20% of its long-term assets—a significantly low ratio.

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Crypto Assets At Cost By Cryptocurrency Type

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For the breakdown by cryptocurrency type, Coinbase’s Ethereum accounts for the biggest portion of the company’s crypto holdings, totaling US$154.5 million at cost as of 3Q 2023, slightly higher than Bitcoin’s value of US$138 million.

These figures were worth over US$200 million each at cost during fiscal 2021.

However, their at-cost values have significantly declined over time, primarily driven by the decline in cryptocurrency prices and possibly the sale of these assets during the plunge.

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Crypto Assets At Cost By Cryptocurrency Type In Percentage

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From the percentage perspective, Coinbase’s Ethereum at-cost figure represented 39% of the company’s total crypto holdings as of 3Q 2023.

On the other hand, Bitcoin’s at-cost figure comprised 35% of the company’s total crypto holdings.

Other cryptocurrencies contributed to about 25.5% of Coinbase’s crypto assets at-cost value for the same period.

A noteworthy trend is that Bitcoin’s percentage has significantly declined since 2020, while that of Ethereum has continued to rise and reached a record figure as of 2023.

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Crypto Assets At Fair Value By Cryptocurrency Type

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At fair market value, Coinbase’s Bitcoin holdings were worth more than its Ethereum holdings, notably at US$260 million as of 3Q 2023 compared to US$231 million for Ethereum.

These crypto assets were worth US$400 million each in fiscal 2021, about 50% higher than their 3Q 2023 fair market value.

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Crypto Assets At Fair Value By Cryptocurrency Type In Percentage

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Bitcoin accounted for nearly 39% of Coinbase’s total crypto asset fair market value as of fiscal 3Q 2023, while Ethereum made up 34% in the same period.

Other cryptocurrencies comprised 27% of Coinbase’s total crypto asset fair market value as of fiscal 3Q 2023.

Bitcoin’s percentage was down from 70% in 2020 to 39% as of 2023, while Ethereum’s percentage has risen from 10% to 34% during the same period.

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Crypto Assets At Cost By Category

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Apart from being categorized by type of cryptocurrencies, Coinbase’s crypto holdings are organized by segment: investment and operation.

Investment refers to the long-term holdings of cryptocurrencies, while operation refers to crypto holdings for fulfilling customers’ transactions and corporate expenses denominated in crypto assets.

That said, Coinbase’s crypto assets for investment purposes were worth US$311 million at cost as of 3Q 2023, a far higher figure than its operational counterpart, whose at-cost valuation was only US$82 million in the same period, as presented in the chart above.

A noteworthy trend is that Coinbase’s crypto assets for investment purposes have slightly increased since 2022.

On the other hand, we are seeing a decline in Coinbase’s crypto assets for operational purposes for the same period.

In short, it makes sense for Coinbase’s crypto assets to grow for investment and remain sufficient for operation.

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Crypto Assets At Cost By Category In Percentage

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From the percentage perspective, Coinbase allocated 79% of its total crypto holdings for investment purposes and 21% for operating purposes.

The allocation of crypto assets for investment purposes has significantly risen since 2021, from 53.7% in 3Q 2021 to 79.1% in the latest quarter.

On the other hand, the allocation of crypto assets for operating purposes has declined from 46.3% in 3Q 2021 to 20.9% in the latest quarter.

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Crypto Assets At Fair Value By Category

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At fair market value, Coinbase’s crypto assets allocated for investment purposes reached US$572 million as of 3Q 2023, while the allocation for operating purposes reached US$102 million.

Like the at-cost figures, the fair value figures for investment purposes have significantly risen, while those for operational purposes have declined.

Again, it makes sense for cryptocurrency assets to appreciate as an investment while remaining sufficient for operational purposes.

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Crypto Assets At Fair Value By Category In Percentage

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At fair market value, Coinbase’s crypto holdings as investments accounted for as much as 85% of the company’s total crypto assets as of 3Q 2023.

On the other hand, Coinbase’s crypto holdings as operating purposes accounted for only 15% of the company’s total crypto assets fair market value in the same period.

The percentage for crypto assets as investment has significantly risen, while operational purposes have declined since 2021.

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Conclusion

Coinbase’s investment in cryptocurrencies accounted for a relatively small portion of its total long-term assets, as the fair market value of its entire crypto holdings was only 20%.

This figure was only 11% when the crypto assets were valued at cost.

This suggests that Coinbase may have allocated a smaller percentage of its resources to cryptocurrencies than other investment options.

Despite the relatively small crypto holdings, the values of Coinbase’s crypto assets have significantly grown in post-pandemic periods, especially for holdings allocated for investment purposes.

In short, Coinbase could do better.

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Credits and References

1. All financial figures presented in this article were obtained and referenced from Coinbase Global, Inc.’s annual and quarterly filings, earnings reports, news releases, shareholder presentations, etc., which are available in Coinbase Investor Relations.

2. Pixabay images.

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Disclosure

References and examples such as tables, charts, and diagrams are constantly reviewed to avoid errors, but we cannot warrant the total correctness of all content.

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