Q1 2024 Coinbase Global Inc Earnings Call - Q&A
Good afternoon. My name is Sarah and I will be your conference operator today at this time I would like to welcome everyone to the claim basis first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
After the prepared remarks, there will be a question and answer session and if you would like to ask a question. During this time. Please press star one on your telephone keypad. If you wish to withdraw your question simply press Star one again.
Speaker Change: Well good job Vice President Investor Relations you May begin your conference.
Speaker Change: Okay.
Speaker Change: Good afternoon, and welcome to the clean base first quarter 2024 earnings call. Joining me on today's call are Brian Armstrong co founder and CEO, Emily Choi President and C. O O Alicia Haas, CFO and Paul Great Wall, Chief Legal officer.
Speaker Change: I hope you've all had the opportunity to read our shareholder letter, which was published on our Investor Relations website earlier today.
Speaker Change: Before we get started I'd like to remind you that during today's call. We may make forward looking statements actual results may vary materially from today's statements information concerning risks uncertainties and other factors that could cause. These results to differ is included in our SEC filings.
Speaker Change: Our discussion today will also include references to certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures.
Speaker Change: Are provided in the shareholder letter on our Investor Relations website.
Speaker Change: non-GAAP financial measures should be considered in addition to not as a substitute for GAAP measures.
Speaker Change: We are once again using the same technology platform to enable our shareholders to ask questions.
Speaker Change: And in addition, we will take some live questions from our research analysts.
Speaker Change: That I will turn it over to Brian for opening comments.
Brian Armstrong: Thanks, Neil Q1 was a very strong quarter, we generated more adjusted EBITDA than we did all of last year.
Brian Armstrong: Keeping our cost structure low while continuing to innovate is really paying off.
Brian Armstrong: To kick off today's call I wanted to provide a progress update on the 'twenty 'twenty four priorities that I shared on our Q4 call.
Brian Armstrong: As a refresher they are first driving revenue.
Brian Armstrong: Doing this through improvements to our core simple trading experience growth and stable coins, winning in the derivative space both in the U S and abroad and driving international growth by investing in key markets.
Speaker Change: Second we're driving utility and crypto, we're doing this through base, our low cost layer two solution and building a better payments experience on crypto rails.
Speaker Change: And third we're driving regulatory clarity.
Speaker Change: We're doing this through the courts through collaboration with policymakers around the world the past sensible rules and most importantly through activating the crypto voter base two electric pro crypto candidates in this upcoming election.
Speaker Change: Let's start with driving revenue.
Speaker Change: In Q1, we capitalized on strong market conditions, and we saw many of our investments through this last downturn begin to pay off our.
Speaker Change: Our institutional business continued to see meaningful growth in part driven by the excitement around bitcoin Etfs, which drove new customer adoption across our product suite.
Speaker Change: Coinbase Prime reached all time highs in trading volume and active clients and nearly 40% of our clients engaged with three or more products in Q1.
Speaker Change: Turning to derivatives, both coinbase financial markets and Queen based international exchange have shown promising growth in their early stages.
Speaker Change: In Q1 claim based international exchange added 15, new perpetual of future future listings.
Speaker Change: We've also increased the position limits across both products.
Speaker Change: U S D C market cap increased over 30% year to date and is growing faster than major competitors we.
Speaker Change: We see higher engagement from customers, who hold U S. D C balances on our platform. So we've been investing in growing those platforms balances by unifying order books on advanced trading and offering competitive rewards.
Speaker Change: And while it's still early days, we're also seeing great traction with coinbase, one our consumer subscription products, which surpassed 400000 paid subscribers in Q1.
Speaker Change: Next let's move on to the utility.
Speaker Change: I'd like to spotlight our layer two solution base.
Speaker Change: As a reminder, layer two solutions help blockchain scale similar to on the Internet and moved from dial up to broadband.
Speaker Change: And we believe this scaling will drive many new use cases in the crypto economy.
Speaker Change: This has helped dramatically reduce transaction fees and confirmation times getting us closer to our goal of having the average crypto transaction take less than one second and cost less in one sense.
Speaker Change: Anywhere in the world.
Speaker Change: Developer activity on base increased eight fold in Q1 in the last 30 days base has processed over two times as many transactions as the entire network on layer one.
Speaker Change: <unk> is now the number one layer two solution by number of transactions processed a huge accomplishment.
Speaker Change: We've made base faster and cheaper to use a fee reduction by about 80% through protocol upgrades.
Speaker Change: And our fees are now often below one set.
Speaker Change: We're also integrating U S D C on base across clean base products, creating nearly free instant global payments and a USD denominated asset. This is a really really big deal because we now have direct line of sight to update the global financial system by reducing the billions in payment fees paid by consumers and businesses each year.
Speaker Change: Finally, let's discuss regulatory clarity coinbase continues to invest heavily in driving clear rules and regulations around the world for crypto and we're actively contributing to advancing pro crypto candidates. During this major election year.
Speaker Change: Were a large contributor to pro crypto organizations like fair Shake Super pack, which already had a great impact in the March primaries in California, Texas and Alabama.
Speaker Change: We also continue to work with grassroots advocacy organizations like stand with crypto Dot Org, which now has over 400000 crypto advocates who have raised their hand, indicating they want to elect pro crypto candidates in November.
Speaker Change: We're also making steady progress in getting clarity through the courts in our litigation with the SEC and.
Speaker Change: In Q1, the court ruled on our motion to dismiss dismissing the sec's claim regarding coinbase wallet, which was a significant win for self custodial wallets across the industry.
Speaker Change: This win provided clarity for us and developers to continue to drive our unchain product growth, which we believe is an important element in fulfilling our mission of increasing economic freedom.
Speaker Change: The court denied the rest of the motion at this very early stage, meaning the rest of our cases preceding to discovery, but we're fully prepared for an intensive discovery phase through the remainder of the year and remain confident in the strength of our legal arguments.
Speaker Change: 'twenty 'twenty four is shaping up to be an important growth year for our industry and for our mission.
Speaker Change: Now I'll pass it over to Alicia who will provide detailed insights into our financials.
Alesia Haas: Thanks, Brian and good afternoon, everyone today I'm going to cover three topics first comment on our Q1 financial performance second a review of the key transaction and an accounting change and third I'll touch on our Q2 outlook you can find more details on all of these topics in our shareholder letter and our 10-Q.
Speaker Change: Let's start with Q1 financial performance.
Speaker Change: Q1, total revenue grew 72% quarter over quarter to $1 6 billion.
Speaker Change: We generated $1 $2 billion in net income and adjusted EBITDA was $1 billion as Brian said more than we generated in all of 2023.
Speaker Change: We ended Q1 with a strong liquidity position, including $7 $1 billion in USD resources.
Speaker Change: Equally if not more importantly, our customer safeguarded assets grew to $330 billion, we're proud to safely store over 12% of total crypto market cap on our platform.
Speaker Change: These results reflect our focused execution on product expansion.
Speaker Change: Ongoing operational discipline and strong market conditions.
Speaker Change: Looking at transaction revenue transaction revenue grew 103% quarter over quarter to $1 1 billion.
Speaker Change: This is driven by higher crypto asset volatility as well as crypto asset prices, which both increased sharply in March.
Speaker Change: On the consumer side trading volume growth was strong across both simple and advance resulting in our consumer blended average fee being roughly flat quarter over quarter.
Speaker Change: We saw higher engagement from users acquired.
Speaker Change: In 2023, and prior as well as new user growth.
Speaker Change: We also gained market share in spot trading on both the consumer and institutional trading platform.
Speaker Change: Okay.
Speaker Change: Brian shared earlier in his opening comments, but claim based prime trading so theyre all time highs in the first quarter.
Speaker Change: I wanted to share that in the first quarter, we broke out other transaction revenue, which consists of revenue from base sequencer fees and payment related revenue.
Speaker Change: These revenues were previously included in consumer transaction revenue.
Speaker Change: Our goal is to drive utility earnings with payments and this new revenue transparency helps provide investors insight into the ambition.
Speaker Change: Our subscription and services revenue grew 36% quarter over quarter to $511 million.
Speaker Change: This growth was driven by higher crypto asset prices and native unit growth.
Speaker Change: I'd like to call out that the price of a theory was 60% higher when comparing March 31 to December 31st and was a key driver at the blockchain rewards revenue question.
Speaker Change: On the native unit front, we did see inflows into both custody and staking U S. D. C market cap grew 32% to over to close Q1 at over $32 billion.
Speaker Change: I'd also like to note that in Q1, we renamed interest income to interest and finance fee income and we reclassified prime financing fees to this line, which was previously recorded in other subscription and services revenue.
Speaker Change: On the expense side total expenses increased 5% sequentially to $877 million and as we shared on our last call. The primary driver of quarter over quarter expense increase with higher stock based compensation.
Speaker Change: Alright second topic, there are two items to note today one in the first quarter. We issued convertible note. This was an opportunistic capital raise that raised $1 $1 billion in net proceeds and added to our cash balance we plan to use proceeds from that capital raise to repay our outstanding debt at or prior to maturity depending.
Speaker Change: Market prices.
Speaker Change: Second update notable accounting change we.
Speaker Change: We early adopted accounting standard at 2020 308.
Speaker Change: As a result, we now account for all crypto assets that we hold on our platform at fair value as compared to historically, where we accounted for these assets at cost less impairments.
Speaker Change: In Q1 since crypto asset prices were higher on March 31, as compared to December 31, we recorded $737 million in pretax crypto asset mark to market gains.
Speaker Change: The majority of deaths was unrealized at quarter end, we had not sold the asset in a realized gain.
Speaker Change: You can see that in two new financial statement line items first $86 million in gains on crypto asset held for operations net and operating expense, which pertains to crypto held and used in our operations second $650 million recorded in gains on crypto assets held for investments.
Speaker Change: Net which is below the line it pertains to our long term investment portfolio.
Speaker Change: We will be adding back gains or losses on the crypto investments to adjusted EBITDA as we do not consider those assets to be part of our day to day operations.
Speaker Change: Last I'd like to touch on our outlook.
Speaker Change: We shared in the letter that April transaction revenue was over $300 million.
Speaker Change: And that we anticipate subscription and services revenue to be in the range of 525 million to $600 million.
Speaker Change: This assumes crypto asset prices stay in the range, we have seen year to date 2024.
Speaker Change: On the expense side.
Speaker Change: We expect technology and development and general and administrative expenses to increase sequentially to $660 million to $710 million.
Speaker Change: This increase is primarily driven by higher variable expenses, notably customer support and certain infrastructure expenses related to higher trading volumes.
Speaker Change: I want to point out that on the customer support side expenses typically lag revenue growth and trading volume growth as it takes us time to ramp up the resources to meet higher volumes.
Speaker Change: Last item of note on the outlook, we are investing in additional sales and marketing expense and expect these to increase to $150 million to $180 million.
Speaker Change: The primary driver in this growth is the U S. D C rewards due to U S. D. C. On platform growth. We ended Q1 with $5 5 billion and USD Sam platform nearly double compared to our Q4 ending balance and therefore, the reward payouts on these incremental balances will increase in Q2.
Speaker Change: We are pleased to see this growth in U S D C and our incentive programs driving the broader adoption of our platform products and services.
Aneel: That aneel back to you for questions.
Speaker Change: So, let's turn to shareholder questions. We're taking the most upvoted questions as determined by the number of shares. Our first question is how profitable has the base network been and how will this drive value to shareholders Alicia.
Alesia Haas: Thanks, Brian shared earlier in his comments, we're seeing some really encouraging traction on base and I just mentioned that we have a new revenue line item called other transaction revenue. It's a combination of the based sequencer fees and payment related revenues.
Alesia Haas: Order over quarter in Q1, the growth that we saw was primarily driven by growth in base sequence or fees.
Alesia Haas: Early days, however, and our primary focus is on growing developer activity driving adoption driving those transactions that we noted earlier I want to point out that base has really strong unit economics. So as we grow transaction volume, which is the key growth metric. We're focused on we believe that base can become a material contributor to our revenue and profits over the long term.
Speaker Change: So our second question is have you done an analysis to determine the net revenue impact from the spot Etfs Emily.
Emilie M. Choi: Sure as Brian mentioned, the Etfs unlocked a flywheel of customer engagement across our coin based prime product suite and we were excited to see 40% of institutional clients engaged with three or more products in Q1, we.
Emilie M. Choi: We saw both direct and indirect revenue impacts from the Etfs.
Alesia Haas: The direct impact is clear in our financials. We saw native unit inflows are such as Jeremy and for eight of 11 issuers. The supported growth in our assets under custody of 69% quarter over quarter to 171 billion as well as growth in our custodial fee revenue of 64% quarter over quarter to $32 million.
Alesia Haas: We also saw strong growth in Prime finance revenue, which contributed to interest and finance fee income being up 36% quarter over quarter.
Alesia Haas: On an indirect basis. In addition to Colombia's prime reaching all time highs in trading volume and number of active clients. We saw elevated trading activity across the board in Q1.
Alesia Haas: We saw broad based consumer growth in advanced and simple with consumer trading volume up 93% quarter over quarter outperforming the U S market. We've long said that the Etfs would benefit the entire ecosystem and we're thrilled to see that play out on our platform.
Speaker Change: Alright, and the final question, we'll take from say is does claim based plan to offer any other products in the near term like banking or insurance products Bryan.
Bryan: Yeah. So we're not planning to build anything in the banking or insurance space at the moment.
Bryan: We feel like we have plenty to do in the crypto space and we want to really focus on how crypto rails can be used to update the global financial system.
Bryan: Make things faster cheaper more global.
Bryan: And things in crypto tend to have a 100% reserve ratio you don't need a banking license. If you wanted to kind of do a fractional reserve or something like that which we don't have any plans to do at the moment.
Bryan: We also try not to pre announce anything on these calls I kind of believe and let's not announced vaporware, let's actually go build things in it.
Bryan: Once they're live we kind of announce them to everybody, including on these calls, but you can imagine that we're always looking at how we can provide more services for retail in Stow and also on our developer platform.
Bryan: There's all kinds of things that crypto or really is really enabling at this point and with base coming online there'll be a lot of opportunities. There we're doing a lot of international expansion.
Bryan: We've got a whole Adrienne economy to build so you know good ideas can come from anywhere within coinbase, even bottoms up we we've had groups come and pitch us on ideas and some of those have turned out to be the products that you see there lives today. So I suspect we will continue to do that and create a lot of innovative products overtime.
Speaker Change: Alright, great well that Sarah let's switch and take live questions from the analysts please.
Speaker Change: Thank you. Your first question comes from the line of Devin Ryan with citizens JMP. Your line is open.
Devin Patrick Ryan: Okay, great. Thank you everyone.
Devin Patrick Ryan: First question just want to follow up here on base and appreciate the growth there is not going to be linear, but as we think about the rollout and I think the smart wallets later this quarter, which I believe are on testing that now.
Devin Patrick Ryan: Keep that could represent a pretty material catalyst for both the step function of activity on base and also U S. D C growth and adoption. So I'd love to just maybe get your expectations. There just based on the interest you are seeing around integration with smart wallets, and particularly as youre kind of thinking about taking a step deeper into connectivity.
Devin Patrick Ryan: With web three thanks.
Devin Patrick Ryan: Yeah.
Speaker Change: Yeah sure I can take that so thanks for calling out the smart wallet, that's been a really exciting innovative product that we're working on and you know it's very early days. So we have to kind of caveat everything we say here. We don't we don't know exactly what the impact will be but.
Devin Patrick Ryan: One thing we've been always thinking about Queen basis, how do we make these tools easier to use and onboarding to crypto wallets has been a really big challenge in the past you have to sometimes they are the 12 word phrase and you have to save it in a safe spot or use some kind of chrome extension and we always think about how do we get this to 1 billion people. So they can benefit.
Bryan: And the technology there.
Bryan: Those kind of Onboarding experiences are a little bit too technical for probably that size of an audience. So.
Bryan: With the smart wallet, we've been utilizing this kind of accretion of the past keys, which is an interesting technology in its own right. You may have seen it kind of if you.
Bryan: <unk> done a biometric puts you put your fingerprint in various scenarios and different kinds of apps. This is allowing us to onboard people into the crypto economy in a much faster simpler and actually more secure way, where they're less likely to lose funds. So we have a developer preview out right now it's only on testing that we've got an incredible developer.
Bryan: Interest in it and that's a really exciting thing because all of that leads to basically more applications getting built and it goes back to that analogy I mentioned where basis I think kind of going to be like the internet moving from dial up to broadband.
Bryan: If we can if we can build better developer tools will get more applications and that's how we eventually get it 2 billion people.
Speaker Change: Okay terrific color. Thank you just a follow up.
Speaker Change: Obviously, a big step up in USD resources.
Speaker Change: $5 5 billion to $7 billion I know.
Speaker Change: <unk> benefited from the convert as you guys mentioned, but also strong cash generation in the business. So if we think about.
Speaker Change: The level of growth you're seeing right now in all the areas that you're focusing on in the areas that need capital to grow and support their businesses versus ones that don't and how are you thinking about kind of the capital needs of the business now and where does that leave you just with what we think is just kind of building capital for capacity to do.
Speaker Change: Things like more aggressive M&A or.
Speaker Change: Potentially return capital to shareholders, just love an update there as well.
Speaker Change: Thanks, I'll take this one.
Speaker Change: We are plowing, a fair amount of capital into our prime financing business. We ended the quarter with just over $700 million in loans, which is the majority of them came from assets on our own balance sheet, whether that with Fiat U S. D. C. We have a new footnote the disclosures a lot of detail around that lending portfolio. So that business is using liquidity I wouldn't say that it's using a lot.
Speaker Change: Our capital today, but we are bridging that product as we grow and develop a two sided marketplace for institutional lending.
Bryan: We also use capital cheaper international expansion as we set up new license legal entities around the world, but overall I would say we have a very capital efficient business, where we have positive unit economics in our products and we don't require significant capital either in the form of capex or balance sheet to support them. So our balance sheet are intended to be bridge capital for a lot of these boots dropping.
Bryan: The products as well as opportunistic so that we can pursue M&A and I'll pass over to Emily to share what we're looking at on that front.
Emilie M. Choi: Sure well, we always look at a spectrum of buy build partner and best activities and so for example, sometimes we'll see really interesting opportunities that are kind of further out for us that would that would be well suited for venture, whereas if we have something on the product roadmap that we think is incredibly important to the future of <unk>.
Emilie M. Choi: Base, we're going to probably build or buy.
Emilie M. Choi: And we have done historically very well with M&A to bolster the product portfolio you can think of things like tell me.
Emilie M. Choi: For example that helped us build our institutional product platform.
Emilie M. Choi: Right now we happen to be shipping very well organically, we've got launched in Canada, Brazil, Singapore, we have the international exchange.
Emilie M. Choi: So we're leaning a little bit more into our ventures arm, but we're watching M&A opportunities all the time.
Emilie M. Choi: We closed or down in 2023, that's now clean based asset management.
Emilie M. Choi: We are acquiring a miss it license for the EU, we announced that in Q1 that should unlock derivatives in 2000, plus EU markets.
Emilie M. Choi: And we're just going to continue to use the strong balance sheet to drive growth, where we see high quality opportunities.
Emilie M. Choi: Your next question comes from the line of Ken Worthington with Jpmorgan. Your line is open.
Kenneth Brooks Worthington: Hi, good afternoon, and thanks for taking the question. So <unk> 2004 total revenue up 72% <unk> 2004 total expenses up five.
Kenneth Brooks Worthington: Amazing operating leverage.
Kenneth Brooks Worthington: <unk> two <unk> guidance suggests some higher costs, but still a very high level of profitability. How are you thinking about the right level of investment in the context of what is a good crypto currency environment, but acknowledging they can't sort of turn on and turn off investments as quickly as revenue might move around.
Bryan: And is there a sort of a logical margin range.
Bryan: And these better crypto currency conditions, you feel is right over a longer timeframe balance.
Bryan: Balancing the need for future growth and current profitability.
Speaker Change: Thanks, Ken for your question.
Ken: So I think it's important to note that our focus is on a positive adjusted EBITA and our overarching goal is to generate positive adjusted EBITDA in all market conditions, you saw that in 2023, those adjusted EBITDA margins were in the 30 percents, obviously, when we see strong crypto market conditions, we were able to deliver the Q1 performance that you see today.
Ken: In the 60% range.
Ken: But the focus here is on learning the lessons from the past and we learned in 2021 that we grew too quickly.
Bryan: So as we look at 2024, we are going to be making investments. We are plan to be prudent and modest to support the strong performance, we've seen year to date and especially some of the early traction that we're seeing for example in base in USB C and some of these other products that are not as correlated with.
Bryan: Crypto market prices and volatility for.
Bryan: For the outlook, we provided for Q2 the majority of the increase though is coming from variable spend as I noted in my comments, we see CX customer.
Bryan: And compliance operations typically lagged trading volume and so the spike that we saw in March the expenses are really hitting in Q2.
Bryan: And then we also have some info related spend associated with scaling our in front to meet demand.
Speaker Change: We are going to be prudent.
Speaker Change: We expect to see some modest headcount growth in Q2, but we plan to be able in strong market conditions to deliver to the bottom line.
Speaker Change: Your next question comes from the line of Benjamin Button with Barclays. Your line is open.
Benjamin Elliot Budish: Hi, good evening, thanks for taking the questions maybe just a couple of sort of model related questions first on the payment related revenues and the secrets your fees on the payments side could you talk a little bit more about what those are exactly how should we think about modeling them what are the key drivers.
Speaker Change: Sure. So its a broad category for everything on the platform that is payments related it includes instant withdrawal fees debit card fees commerce fees.
Speaker Change: Some of them more venture type products that we have in the portfolio that our payments related.
Bryan: So I would say that base as I mentioned earlier, it's been the biggest contributor to growth quarter over quarter and that is the largest of these revenue streams at this time, but the payment related to the ones that I named.
Speaker Change: Got it helpful and then.
Speaker Change: Just on the institutional client engagement, you talked about I think 40% of institutions seeing engagement engagement with three plus products can you talk about where that is and is it sort of you've got a client who started with trading and they add prime and borrowing and theyre doing stuff with ETS can you, maybe unpack that a little bit.
Speaker Change: Anywhere you're seeing particularly strong traction in any particular types of products.
Speaker Change: Sure happy to so I think it's really important to kind of zoom back and look at the last bull run where our institutional offering in 2021 was really limited to like the custody platform and over the last few years, we've built out a full prime suite into the Prime suite offers custody trading to the prime brokerage product. It offers financing now.
Bryan: We are staking and so we're seeing customers engage across that product spectrum I would say custody trading go hand in hand, and then you see depending on the type of client, whether they need financing business or whether they're in sticking it shouldn't be a mixed depending on the types of clients that we're seeing good adoption across each of those which has led to the growth that you saw in the quarter.
Bryan: Sure.
Bryan: Your next question comes from the line of Owen Lau with Oppenheimer. Your line is open.
Owen Lau: Yes. Thank you Paul taking my question.
Owen Lau: Could you please add more color on your strategy for Lightning network and payment.
Owen Lau: What is the traction on encouraging mall merchants could use lightning network and what are the major pushback from that thank you.
Speaker Change: Yeah, I can take that one.
Owen Lau: So as I mentioned in the opening remarks, one of our goals is to drive down the cost and the confirmation times of all payments and crypto really all transactions and crypto I should say.
Speaker Change: And bitcoin is the largest network out there and so lightning was a big effort that we went on in partnership with light sparked by the way.
Speaker Change: To enable the lightning network on coinbase so.
Speaker Change: This actually decrease the transaction times by over 99% and.
Speaker Change: Essentially became incidence on the lightning network versus roughly a 10 minute walk confirmation time on the bitcoin layer one.
Speaker Change: And it also lowered fees down.
Speaker Change: Down about less than 110th of 1% from.
Speaker Change: From the previous fees.
Speaker Change: So this was a huge step towards getting to that sub one second one.
Speaker Change: If we can do that across all the major change sort of make layer to lightning network of defaults within our apps and products. Then I think the average transaction happening in crypto or at least on our products will get under that one second one.
Speaker Change: My my excitement about that is that it allows us to really start to fulfill some of the long term goals of crypto, which is how do we update the global financial system, how do we make it more fair and efficient and global and <unk>.
Speaker Change: And really kind of reduce those payment fees, which are.
Speaker Change: Shocking burden for a lot of consumers and businesses I mean, it's still boggles My mind that every time you swipe your credit card the merchant is losing 2% its really.
Speaker Change: Just moving bits of data kind of like sending a whatsapp message, which is free and so theirs.
Speaker Change: Why does that still exist as a 2% tax on every transaction in the economy I think we've seen in other.
Speaker Change: There are technologies out there that as you reduce friction you get more and more activity and so I think it could lead to you know economic growth in all kinds of things just lower fees that people are paying so anyway. We're excited about having launched the lightning integration with lightspeed. They were a great partner and hopefully we can do that across all the major change that people.
Speaker Change: We're using.
Speaker Change: Your next question comes from the line of Kyle Voigt with <unk> W. Your line is open.
Kyle Kenneth Voigt: Hi, Thanks for taking my question.
Kyle Kenneth Voigt: Maybe just going back to the institutional business just on the trading side, where the fee rate came in better than expected and has increased the last two quarters. Despite volumes growing significantly over that time is what's been driving that and then I'm also just wondering whether the strong market share on the ETF custody side and more broadly the competitive.
Kyle Kenneth Voigt: Turning across the U S. Institutional crypto ecosystem has given you some pricing power in the institutional business more broadly so not just on trading and should we think about maybe pricing or fee capture to increase over the medium term in that in that institutional business because of that.
Speaker Change: Thanks, Kyle So I wanted to start just remind you that there's two products underneath the hood of the institutional transaction fee revenue the fee.
Kyle Kenneth Voigt: First is the exchange, where we have market makers trading directly on the exchange and the second is our Queen based prime which is the trading through the prime brokerage platform fees unclaimed based prime are higher than the fees on.
Kyle Kenneth Voigt: Exchange largely due to the exchange has been very high volume, where our tiered pricing enables most of the clients participating in that to achieve very low fee levels. So when you see the go up it's really driven by a mix shift and we're seeing more growth on coinbase prime than we saw in the exchange and as we grow Coinbase, which I mentioned in my previous remarks, Brian It was now.
Kyle Kenneth Voigt: All time highs in engagement on <unk> prime both in trading volume as well as number of active clients and that is what drove that for the last two quarters. It's just continued engagement with the claim is primarily products.
Kyle Kenneth Voigt: Your next question comes from the line of Joseph <unk> with Canaccord Genuity. Your line is open.
Joseph: Hey, guys Nice results. This afternoon, maybe we could just drill down into some of their user base metrics obviously.
Joseph: I'm sure you saw a lot more trading from existing users, but just wondering you know.
Joseph: How much perhaps new users.
Joseph: Contributed to the strong quarter, and then I have a quick follow up.
Speaker Change: We haven't broken it out, but we saw growth yes from existing users users that were acquired prior to 2023 that we engaged this quarter. We saw new users and we also saw a higher trading volume per user.
Joseph: So.
Joseph: Both of these are all three of these metrics really contributed to the growth, but we have not attributed provided that level of detail.
Speaker Change: Got it and then just secondly, I mean, the Etf's got a ton of press attention in the quarter and I think that perhaps maybe underlying bitcoin spot trading was kind of I guess, you know not mentioned as much in the press I was just wondering if you've got a feel.
Joseph: Kind of where it is.
Joseph: Perhaps it was like a multiplier effect and in the ETF driving more bitcoin trading obviously it was.
Joseph: The other color you'd have there is kind of a.
Joseph: <unk> metric relative to ETF activity. Thank you.
Joseph: Okay.
Speaker Change: I can take it if you want I mean, yeah look I think the Etf's got a lot of attention, but what we're seeing is that when there's attention on crypto in general I think it creates.
Speaker Change: Energy and interest across all kinds of all kinds of products in the industry. So.
Speaker Change: We mentioned in the opening comments that.
Speaker Change: This excitement around bitcoin Etfs actually drove new customer adoption across our product suite and we saw all time highs in trading volume in our inactive clients for instance, in our institutional business. So.
Speaker Change: I think it's a rising tide that lifts all boats.
Speaker Change: Your next question comes from the line of Bill pay with U S. Tiger Securities. Your line is open.
Bill: Hi management, Thanks for taking my questions and congrats on the strong yourselves I have two questions. If I may so.
Bill: What is your view on the recent wells notices received by unions swap that do think this will potentially impact the U S industry and ultimately make quicker access to U S. Users and second question also on the regulatory front. It seems that the U S C wants to classify.
Speaker Change: Acuity.
Speaker Change: <unk> is classified as a statistic acuity in the U S. How does that impact client base trading services, taking vessels plus <unk>.
Speaker Change: <unk> had to stop offering trading for Ethan and Bob.
Joseph: The <unk> classifier securities. Thank you.
Joseph: This is Paul great I'll happy to address each of those questions on the unit swap wells notice.
Paul: I think it's noteworthy that unit swap responded publicly transparently and made very clear their view that none of the claims that have been suggested represented them have any merit whatsoever I.
Paul: I do think that is reflective of an emerging trend.
Joseph: Just in this industry, but we're generally of companies taking their disagreements with the SEC publicly always in a respectful town always in a constructive manner, but sharing with.
Joseph: The wider public and certainly the wider market why they believe their products and services are consistent with federal securities laws and why they ultimately will prevail any action that the SEC may bring.
Joseph: As for the East.
Joseph: Issue.
Joseph: And the consensus declaratory judgment action that was recently filed.
Joseph: I think consensus has done in that particular case is again.
Joseph: In a very transparent productive constructive manner Les Baer, an issue that has been.
Joseph: Somewhat confused if you look at SEC statements.
Joseph: One of the commission over the last several years and the SEC has.
Joseph: Very clear in the past that he does not have security in fact, not only was that the position of.
Joseph: Senior officials at the SEC. The current chair of the SEC said that same exact thing.
Joseph: Higher to his appointment.
Joseph: In the years that followed so.
Joseph: We're fully supportive of both swap and consensus in your view.
Joseph: Court process of course, we'll have to play out, but we're confident that.
Joseph: Brian has always emphasized one way or the other through these court processes, we're going to get clarity for the market and certainly for coinbase and Unfortunately, the SEC has not been willing to provide in its own right.
Joseph: Your next question comes from the line of Mike <unk> with H C. W. Your line is open.
Mike: Hi, Good afternoon, guys. Thank you for taking my questions and really great quarter. Here. So my question is around USD six so the market cap has grown by over 8 billion since the start of the year.
Mike: Do you consider the primary drivers supporting this rebound and how are you thinking about growth over the coming quarters, and then as a quick follow up to that.
Mike: I saw that you mentioned in your shareholder letter that you've seen a step change from legislators in recent months. So I know these things are difficult to time, but when can we reasonably reasonably expect to see stable coin legislation passed in the U S and what would be the potential impacts for USB C.
Speaker Change: Why don't I take the first part and then Paul I'll hand, it over to you for the second part. So we're really pleased to see the broader U S. D. C. Gross as we mentioned we saw U S. You see growth on our own platform, where our own on platform balance nearly doubled in the quarter and we also saw growth in the overall ecosystem I think theres been recognition that you actually see is a highly trusted.
Paul: Transparent stable claim by many market participants and that has been leading to broader adoption.
Speaker Change: Largely through efforts of ourselves and other market participants. So we will continue to offer incentives will continue to work with the global ecosystem to make it an adopted product and Paul maybe you can offer comments on.
Paul: Sure on the legislation.
Paul: Look I work.
Paul: Pleased and encouraged that Congress is paying attention to this important issue and there are now a number of proposals for legislation that are working their way through.
Paul: Through the Congress well, while certain proposals I think could and ultimately will be improve the fact that we're seeing in Congress engage I think is the important thing coin.
Paul: Coinbase has been pushing for sensible legislation.
Paul: Stable clients for some time.
Paul: We think it is an important complement of our two regulation that we've been pushing for.
Paul: Before the FCC and elsewhere, so regardless of sort of.
Paul: When we when any such legislation my past, it's always difficult to predict.
Paul: How quickly Congress can able to engage and muster the necessary support in order to move this from.
Paul: Mirror legislation that's proposed to legislation enacted.
Paul: We're encouraged by the fact that it does seem to be a priority and we do expect to see legislation ultimately enacted that will.
Paul: Brian standards for transparency standards for.
Paul: Reserves and other important requirements from state local and so we think we will continue to make the U S in an attractive market.
Paul: Your next question comes from the line of John <unk> with Needham and company. Your line is open.
John: Great. Thanks for taking my question congrats on the quarter good results here.
John: I had two here one on the $300 million outlook for the April transaction revenue does that include the other transaction revenue base and if so how much is that and then second.
John: Management has talked a lot about managing through the cycle here no you guys spend a lot of time thinking about that so just kind of curious your thoughts on maybe where we are in the crypto cycle or any kind of thoughts you put around that.
Speaker Change: So I'll answer the first part the answer is yes $300 million is the April total transaction revenue, which includes both consumer institutional and dollar.
Speaker Change: And we haven't broken out the detail at this time to share with you with regards to where we are in the cycle is one of my favorite questions. Brian do you want to take the first shot at that.
Brian Armstrong: Yeah sure so.
Brian Armstrong: Look I'll leave the predictions to you you all investors out there are we just mostly want to focus on building, great products and tools and everything like that.
Brian Armstrong: But I can assure you just a few thoughts with you from past cycles and things that we've observed.
Brian Armstrong: So yeah, the crypto market cap sub six about 60% in Q1 and the volatility though is still below 2031 levels.
Brian Armstrong: So a couple of things have happened, obviously, we had the Etfs and bitcoin, there's possibility for other etfs and like in a theory and things like that down the road in the future.
Brian Armstrong:
Paul: We had the bitcoin, having as well, which kind of reduces the amount of supply being introduced into the market.
Paul: Every every block really that's mined in bitcoin.
Paul: So if you have the same amount of inflows, but half as much supply being generated every day then you can imagine what that does and so people anticipated that in.
Paul: People speculate around those but.
Paul: An interesting way to look at it as kind of in past cycles, what happens post having <unk> and <unk>.
Paul: His first historically, it's taken about 12 to 18 months for bitcoin to peak after having so who knows if that will happen again, but it's just an interesting data point.
Paul: Yeah. So those are all kind of the things that we think about and I actually think layer. Two is probably the biggest piece that's coming down the pipe next we talked about base getting those transaction fees under one second in one sense. It just it not only is it really interesting for global payments, but it's interesting for lots of different applications. It can be built on blockchain.
Paul: In past cycles people started building things like defy and Nf Ts These are things, which you might see.
Paul: Your article you do a transaction and it's okay, you're okay paying kind of a higher fee for that because how often are you going to do a trade or a purchase and maybe the fee is 510 and $25 or whatever.
Paul: For other types of applications like <unk>.
Paul: If you want to make a decentralized social network and every upvote or like button is happening unchain or you're in.
Paul: Some sort of a game or like something thats more of a daily hourly by the minute use case.
Paul: The Carson and confirmation times have to come way down and that's what we're seeing now with layer. Two so that's really hard to predict exactly what's going to happen, but I think it's pretty exciting.
Paul: We have one more question in the queue. It comes from the line of Pete Christiansen with Citi. Your line is open.
Peter Corwin Christiansen: Good evening, Thanks for the question and congrats on the great results here.
Peter Corwin Christiansen: I'm curious so press reports.
Peter Corwin Christiansen: Indicating potentially that luminous Joe Brian.
Peter Corwin Christiansen: Just a floor at some point next week.
Peter Corwin Christiansen: Part of that Bill.
Paul: You probably know is the banking system.
Paul: Some debate.
Paul: As to whether or not states can issue their own stable clients.
Paul: Dependent.
Paul: The government the federal government I'm, just curious how you see state issue stable clients kind of playing in the market is that potentially an opportunity for our client base.
Speaker Change: I'm just curious.
Paul: Your thoughts around around that dynamic. Thank you so much.
Speaker Change: I'm happy to take that one I think the.
Speaker Change: The point that you're raising around the role of state governments.
Speaker Change: And in a particular state chartered institutions in supporting the crypto ecosystem and in particular stable claims is an important one.
Speaker Change: Whether that ultimately comes to pass and any final legislation. That's enacted remains to be seen but we do think it's very important that states continue to have an important role in supporting stable coins and supporting crypto more generally where do you think the dual system serves.
Speaker Change: Tumor and investor interest reasonably well and we're hopeful and confident that in any legislation thats. Finally passed that will continue to be recognized.
Speaker Change: Okay. Thank you Paul.
Speaker Change: Alright, well that does it for today. Thank you all for your questions and we look forward to talking to you next quarter.
Speaker Change: This concludes today's call you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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Speaker Change: Yeah.
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Speaker Change: Yeah.
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