In late 2022, Bitcoin dropped into the $16,000 range in the wake of the FTX scandal. At the time, the landscape was void of credible institutional buy calls. Instead, most of Wall Street stood on the sidelines or echoed consensus risk-off narratives.
Now, as Bitcoin trades more than 600% above its 2022 bottom, a tidal wave of institutional optimism has arrived with many analysts and money managers calling for a doubling in price before year-end. These predictions, while headline-grabbing, arrived only after Bitcoin had already made the bulk of its move in late 2024.
Sentiment is a powerful force in the markets. Historically, the most optimistic bullish narratives tend to emerge when prices are extended, while more cautious narratives often appear near market lows.
Meanwhile, the I/O Fund has consistently set ourselves apart with early, accurate Bitcoin coverage starting in 2019. While others chased the 2021 hype with $200,000 or $500,000 price targets, we took a disciplined approach—cutting crypto exposure by half to lock in gains. More recently, when Bitcoin dropped to the $16,000 region, we issued a Strong Buy Alert to our free subscribers, which was featured on Tier 1 media.
These calls were rooted in a systematic approach to analyzing and investing in Bitcoin through the lens of technical analysis, on-chain analysis, and monitoring global liquidity trends.
Now, the system that helped us identify the $16,000 bottom in Bitcoin is telling a more complex story. Global liquidity appears to be stalling and setting up for a reversal. This is historically not good for Bitcoin and tends to coincide with major tops. This inflection point lines up with our Technical Analysis that has us in the final leg of the multi-year bull market.
However, the size of this final leg is what is in question. While we believe a modest move higher has the most probable scenario, On-Chain Analysis supports a large push higher that could exceed the $200,000 region before hitting a cyclical top. For this reason, we explain our game plan in this report to protect our well-earned gains while remaining positioned for the bulk of the next move higher, no matter where the final target is.
On-Chain Analysis – The Case for Bitcoin $200,000
We’ve consistently relied on WealthUmbrella’s top-tier On-Chain Analysis throughout this cycle. Their model flashed a buy alert in December 2022, around the same time our own system showed a major opportunity in Bitcoin. Since then, they’ve remained as bullish as we have been. The below section was contributed by WealthUmbrella, and they see higher levels before a cyclical top is likely in for Bitcoin.
Volatility Is Low
One of the most meaningful signals today is realized volatility, which simply measures how much Bitcoin’s price has actually moved (up or down) over a recent period. Right now, that volatility is close to a historic low.
Chart created by WealthUmbrella, shows that the current level of realized volatility resembles major lows, not what we see around major tops.
Historically, major tops in Bitcoin—both short-term and long-term—have happened when volatility was rising or already high. So, this current period of low volatility is not something we usually see at the end of a bull run. In fact, it looks more like what we saw at the bottom in late 2022, just before Bitcoin began its massive recovery.
As Bitcoin becomes more mature—especially now that large institutions are involved—some decline in volatility is to be expected. But a full market top forming while volatility is still at record lows would be something unprecedented.
The Supply Side Remains Strong
There’s also strength under the surface. During the recent rally, long-term Bitcoin holders (those who held through prior cycles) were gradually selling. But that selling pressure has cooled off.
Chart created by WealthUmbrella shows the demand for Bitcoin remains healthy in August of 2025.
Meanwhile, new Bitcoin wallets with a balance of zero – i.e., new investors to Bitcoin —are increasing. This means retaildemand is growing steadily. That trend has actually picked up pace in recent weeks, which is a healthy sign.
The Dip Could Be Setting the Stage for the Next Move Up
This doesn’t mean Bitcoin won’t dip a bit lower short term. Its recent price action has been closely tied to movements in the stock market, especially because ETF inflows are driving a lot of the demand. The good news is that this small pullback has already helped cool off some of the overbought conditions that had built up, which should set the stage for another leg higher.
One of our key models, the Metcalfe Law Discount/Premium (MLDP) Z-Score, confirms this. This model is based on the idea that Bitcoin’s value comes from the size and activity of its network (similar to how Metcalfe’s Law values a communications network). The Z-Score shows how “hot” or “cold” the market is relative to its historical patterns.
Chart created by WealthUmbrella shows the Metcalfe Law Discount/Premium (MLDP) Z-Score has ample room to run before hitting a level associated with a meaningful top.
Right now, the Z-Score is down to 0.91. For context, that’s one standard deviation lower than where it was when Bitcoin first crossed $112.9K on July 10. That kind of cooling historically creates room for further upside.
However, our indicators suggest that the next push higher will not be the last or will be a rather large push higher. Our confidence is grounded in a group of in-house models we call Market Top indicators. These models are designed to signal when the market is getting truly euphoric—and they’ve done a good job across different Bitcoin cycles.
Chart created by WealthUmbrella shows that their 3 primary top indicators, which track different elements of Bitcoin’s ecosystem, are in alignment that Bitcoin is not in threat of topping out, yet.
What’s imperative to understand is that these models each look at different parts of the ecosystem—network activity, profit-taking behavior, capital flows. So the chance that all of them would miss the mark at the same time is very low. And if that ever did happen, it would likely mean Bitcoin’s fundamentals have changed in a way that’s never happened before.
To further back this claim, we have run intensive simulations to estimate where Bitcoin’s cyclical top could land. That means: what price would Bitcoin need to reach for all our major models to flash “this is the top”? Using various models, tell us what price would trigger them to signal a top.
The result of this simulation including price targets for a Bitcoin cycle top are discussed in the last section of this report….
How Global Liquidity May Derail the Move to $200,000
Liquidity is one of the most overused—and least understood—terms in financial markets. It refers to the availability of capital in the system—specifically, how easily businesses, consumers, and financial institutions can access cash or credit.
In today's global economy, liquidity is inseparable from debt dynamics. It is not the creation of new debt that dominates capital flows, but the ability to roll over existing obligations. In fact, three out of every four global financial transactions are related to debt refinancing, not expansion. Moreover, nearly 80% of global lending now requires collateral, typically in the form of high-quality, low-volatility assets like U.S. Treasuries.
This creates a framework where liquidity—and by extension, risk appetite—is dictated by how cheaply and easily borrowers can refinance without overcollateralizing. The more capital that’s freed up through this process, the more capital can rotate into risk-on assets such as Bitcoin.
A number of variables influence liquidity conditions:
Central bank policy
Fiscal spending
The Treasury General Account (TGA)
Federal Reserve repo operations
Broad equity market performance
Bond market volatility
Collectively, these forces determine whether capital and confidence flow into the system or are pulled out. However, among all these variables, the most powerful and persistent driver of global liquidity is the U.S. Dollar.
Roughly 64% of global debt is denominated in USD—which means foreign borrowers who accessed cheap U.S. capital must continue sourcing dollars to service that debt. When the dollar weakens relative to their local currencies, less local currency is needed to meet dollar obligations. This frees up capital that can chase higher-yielding risk assets, including Bitcoin.
This inverse relationship between the U.S. Dollar Index (DXY) and Bitcoin has been both consistent and predictive across cycles:
Bitcoin tops have an inverse relationship to the strength of the U.S. Dollar.
In the above chart, three dynamics are evident:
Every major Bitcoin bull market occurred during a declining dollar.
Every significant Bitcoin bear market coincided with a rising dollar.
The steepness of the dollar’s trend often defines the magnitude of Bitcoin’s move in the opposite direction.
We are now approaching a critical inflection point. The Dollar Index has been in a clear downtrend since peaking in late September 2022—just weeks before Bitcoin bottomed. The most recent leg of this decline in the dollar shows a completed five-wave structure, typically the final phase of a correction before a reversal. Momentum is starting to shift upward, and a sustained move above 101 on the DXY would confirm a major low and the onset of a new dollar uptrend.
As of August 2025, the U.S. Dollar Index (DXY) appears to be forming a significant bottom and initiating a new uptrend. A strengthening dollar typically signals a contraction in global liquidity, which could pose headwinds for the ongoing Bitcoin bull market and other risk assets.
The implications are profound. A rising dollar increases the cost of servicing USD-denominated debt for foreign borrowers, draining liquidity from the system and reducing available capital for speculative assets like Bitcoin. In other words, a stronger dollar means tighter global liquidity, and risk assets must adjust accordingly.
However, until DXY can break above $101, it can still make another low, which will further support higher prices in Bitcoin. The takeaway here is to note that the U.S. dollar is closer to a major low than most think. While it can extend further, once we get evidence of a trend reversal, this should line up with a topping process in Bitcoin. Until then, we can and should see Bitcoin continue on an upward trajectory
Using Technical Analysis to Organize the Current Risk in Bitcoin
On-Chain Analysis supports an eventual move to ~$200,000 in Bitcoin before seeing a cyclical top. However, we are seeing the U.S. Dollar close to putting in a major low and threatening to drain global liquidity in the coming uptrend.
When we see potentially conflicting data points between liquidity dynamics and On-Chain Analysis, we tend to lean into Technical Analysis to define the risk parameters in our portfolio. The below section outlines the two most likely paths Bitcoin will take, including the game plan we intend to follow to protect our gains and not miss any of the remaining uptrend….
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Bitcoin is tracing a textbook five-wave advance from its 2022 lows, and by our count, we are now in—or very near—the completion of the final 5th wave.
In Elliott Wave Theory:
Markets move in 5 waves, where waves 1,3,5 are in the predominant direction of the trend, while waves 2 and 4 are corrections within that trend.
Wave 3 is the most explosive segment—driven by panic short-covering, breakout buying, and peak momentum/volume.
Wave 5 is often deceptive. It represents late-cycle optimism, where retail investors and lagging institutions enter, believing the trend is just beginning. It tends to produce a higher high on lower momentum and lower volume.
This current pattern is unfolding exactly as expected. The vertical move in late 2024 was the Wave 3 breakout, marked by peak RSI, momentum, and volume. Every move higher since has shown diminishing participation, with weekly RSI repeatedly stalling around the key 72 level—a threshold that historically coincides with local tops.
A 3-day chart shows Bitcoin is in the final 5th wave of its bull cycle. Either we have one more minor swing, or one more larger swing before starting a new bear cycle.
Based on momentum and volume dynamics, and in alignment with our structural wave count since early 2023, we are closely tracking two primary outcomes:
Red – Bitcoin makes one final push toward ~$128,000 – $149,000.Price remains capped below the key $149,000 level.This triggers a breakdown through successive support zones:$109,000 – $104,500, $92,900 – $86,750. This confirms the end of the larger 5th wave, initiating a multi-month corrective phase with downside targets ranging between $70,000 and $40,000.
Green – Bitcoin finds support between, preferably, $109,000 – $104,500. However, it can still test the $92,900 – $86,750 region and still be valid.A renewed leg higher breaks the $149,000 region with accelerating volume and momentum.This opens the door to extended Wave 5 targets between $200,000 and $225,000, and best line up with the Wealth Umbrella scenario.
A daily chart showing the potential final swings in Bitcoin’s bull cycle. The $133,000 region will be a strong barrier to overcome.
Interestingly, when we circle back to WealthUmbrella’s simulation, the results of their price projections for this cycle best lines up with the scenarios presented above.
According to WealthUmbrella, their conclusion is that the average cycle top is now clustering around $214,000, the average cycle top is now clustering around $214,000, with tight variation across all three models. Furthermore, The MLDP Z-Score model would hit next time its typical “euphoria” zone (3 standard deviations) around $144,000–$165,000, which is significantly below our estimated cycle top. This reinforces our view that the MLDP remains the best short-term reference model for now.
In conclusion, while global liquidity appears to be approaching an inflection point, both Technical Analysis and On-Chain Analysis support another push higher, which would target ~$140,000. This is where Technical Analysis departs slightly from On-Chain Analysis. While we see a path to $200,000, as outlined in our green count, we will take some gains on the next push, then wait to see how price reacts in this region to determine if we cut more, or add it back for the push to $200,000.
Without a systematic game plan based in correlated analysis, sentiment coupled with convincing narratives are designed to force investors to do the wrong thing at the wrong time. We’ve seen this time and time again when classic financial analysts attempt to justify higher targets around major tops.
Historically, narratives-based investing in Bitcoin has been a problem.
Using the system outlined in this report, the I/O Fund has been able to navigate the extreme swings in Bitcoin with uncanny accuracy. While liquidity is flashing yellow, on-chain analysis is flashing green, providing a complex picture. Regardless, both inputs line up with us being in the final 5th wave of a multi-year bull cycle, which are accounted for in our Elliott Wave counts.
Considering the risk, we plan to trade the remainder of this 5th wave – take gains in the next run higher, wait for confirmation on the following drop or bigger breakout to get back in, or the break-down of critical support to sell the other half.
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If you are sitting on outsized crypto gains and have no exit plan or wanting to participate in the next run higher in crypto, we encourage you to join a special webinar next Thursday, 8/21 at 4:30 EST, with the I/O Fund’s lead technical analyst, Knox Ridley, and WealthUmbrella founder, Vincent Duchaine. Together, they’ll dive deep into the internal health of both crypto and equity markets, reveal what smart money is doing, and lay out a tactical roadmap for what comes next. Whether you're trying to lock in gains or position for the next breakout, this session will give you a major edge.
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Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own BTC at the time of writing and may own stocks pictured in the charts.
Coinbase posted a double miss in Q2 with revenue growth of just 3.3% YoY, with both transaction revenue and trading volumes both underperforming the spot market in the quarter.
Despite the soft growth, especially in transaction revenues, Coinbase made significant progress on multiple fronts in the crypto world. This included bringing USDC on Base Chain live in Shopify Payments, launching the Coinbase One Card, reaching all-time high average market share of assets on its custody platform, and significantly expanding its derivatives presence. In addition, Coinbase will be positioned at the center of bringing equities on-chain. There were many interesting discussions about the vision for the company in the earnings call, as noted below.
Coinbase continues to stand out for its large cash reserves of $9.3 billion in total USD resources of which $1.8 billion is in a crypto investment portfolio. It’s also important to zoom-out and look at the bigger picture as Assets Under Custody (AUC) share reached an all-time high of total crypto asset market cap at $245.7 billion AUC due to strong inflows from ETFs and Corporate purchases. Coinbase also shared they are the custodian for over 80% of U.S. BTC and ETH ETF assets as of the end of Q2
As we’ve discussed in the past, earnings reports matter very little for this company compared to technicals. With crypto, our style is to have predefined price targets given this asset class is sentiment driven.
Revenue Growth Flatlines in Q2
Coinbase reported 3.3% YoY revenue growth to $1.49 billion in Q2, missing estimates for 9.9% growth to $1.59 billion. Q2 saw a more challenging crypto market backdrop, with spot volumes down (31%) QoQ globally and (32%) QoQ in the US, while volatility declined (16%) QoQ.
While this a sharp deceleration from Q4 and even Q1, this type of volatility is not out of the ordinary for the crypto industry. For example, Q3 revenue growth is currently expected to rebound to 40.2% YoY, with the spot market rebounding substantially MoM in July.
Key Metrics
Trading Volume
Coinbase’s trading volume underperformed the spot market by more than 8 points, declining (40%) QoQ to $237 billion; however, trading volumes were still up 5% YoY. Coinbase said that its QoQ underperformance was primarily driven by “lower stablecoin pair Trading Volume driven by an intentional pricing change we made in March as we evolved our stablecoin strategy.”
Consumer trading volume increased 17% YoY but declined (45%) QoQ to $43 billion, while Institutional trading volume increased 3% YoY but declined (38%) QoQ to $194 billion.
Coinbase noted that Bitcoin accounted for 30% of trading volume in the quarter, up from 27% in Q1, though growth in trading volume was most notable in altcoin/other assets, which rose from 38% in Q1 to 55% in Q2.
Transaction Revenue
Transaction revenue matched the decline in trading volumes, down (39%) QoQ to $764.3 million; however, revenues were down (2%) YoY, weighed down by the Institutional side.
Consumer transaction revenue decreased (41%) QoQ and (2%) YoY to $649.9 million, as the stablecoin pricing change “disproportionately affected Advanced platform volumes where most of that activity was taking place.” Institutional transaction revenue declined (35%) QoQ and (4%) YoY to $60.8 million. Bitcoin accounted for 34% of transaction revenue, up from 26% in Q1, while altcoins/other crypto accounted for 41%, an interesting disparity to their volume share indicating lower fee rates.
Other transaction revenue declined (21%) QoQ but rose 2% YoY to $53.5 million, although average revenue per transactions on Base Chain “decreased meaningfully.”
Subscription and Services Revenue
Subscription and services revenue was $655.8 million, up just 9.5% YoY but above the $640 million midpoint of its guidance. Coinbase said this was driven by “continued growth in average USDC balances, native units staked, and all-time high average Prime Financing balances.”
For Q3, Coinbase is projecting Subscription and services revenue between $665 to $745 million, or rebounding to 26.8% YoY at midpoint. This is expected to be driven by higher average crypto prices, such as ETH being up 45% quarter-to-date and SOL being up 14%, as well as growth in stablecoin revenue from USDC market cap reaching an all-time high in July.
Within Subscription and services revenue:
Stablecoin revenue rose 38% YoY and 12% QoQ to $338.5 million, driven by a 13% QoQ increases in USDC balances held in Coinbase products to $13.8 billion and off-platform USDC balances to $47.4 billion.
Blockchain rewards revenue declined (22%) YoY and (26%) QoQ to $144.5 million, as staking inflows were more than offset by lower average prices of both ETH and SOL and lower protocol rewards rates.
Interest and finance fee income declined (15%) YoY and (6%) QoQ to $59.3 million, as lower interest income on custodial fiat more than offset a QoQ increase in Prime financing
Other subscription and services revenue rose 15% YoY but declined (15%) QoQ, as lower blended fee rates driven by customer mix and lower non-BTC asset prices offset custodial fee revenue.
Margins
Operating margin dipped into the negatives this quarter, while GAAP net margin was >95% as Coinbase benefited from a significant $1.5 billion gain on strategic investments and a $362 million gain on crypto investments. Adjusted net margin, which was initiated last quarter and excludes those impacts, was razor thin at just 2.2%.
GAAP operating margin was (1.6%), down from a 34.7% margin in Q1. This was the first quarter with a negative operating margin since Q3 2023.
GAAP net margin was 95.5%, due to the aforementioned gains on investments.
Adjusted net margin was 2.2%, down from a 25.9% margin in Q1.
EPS and Adjusted EBITDA
Due to these wild disparities in GAAP and adjusted net margin, Coinbase’s GAAP and adjusted EPS figures are on the opposite end of the spectrum. GAAP EPS was $5.14, beating estimates for $1.51 by more than 240%. However, adjusted EPS was $0.12, missing the $1.49 estimate by (92%).
Adjusted EBITDA was $512.1 million for a 34.2% margin, down from a 45.7% margin in Q1 and a 41.1% margin in the year ago quarter.
Cash and Balance Sheet
Cash flows rebounded to positive territory this quarter, while Coinbase’s liquidity profile remains strong.
Operating cash flow was $328.5 million for a 21.9% margin, rebounding from a (9%) margin in Q1. However, this remained lower than the 33.4% margin from Q2 2024.
Cash and equivalents totaled $7.54 billion, with Coinbase noting it had a total liquidity profile of $9.32 billion when including its net USDC balance of $1.78 billion. Debt remained steady at $4.24 billion.
Q3 Outlook
Coinbase said that it anticipates July transaction revenue to be approximately $360 million, with data from The Block showing spot market volumes rebounding more than 55% MoM.
Coinbase guided for $665 to $745 million in subscription and services revenue, up 26.8% YoY at midpoint. Transaction expenses are expected to be mid-teens percentage of net revenue, while tech, development and G&A expenses are expected to be $800 to $850 million. Sales and marketing expenses were guided at $190 to $290 million, though Coinbase noted that it sees opportunities to continue investing in marketing in Q3.
Earnings Q&A:
Expanding the Crypto Empire
Of the many ways that Coinbase expanded its empire recently, two areas stand out the most – the Everything Exchange and perpetual futures and options.
Everything Exchange & Base App – – Favorable Legislation Announced Today
In the earnings call, Coinbase management announced their new everything exchange, which will effectively expand their trading platform to also include tokenized stocks and real-world assets. We recently covered Robinhood’s similar efforts to expand to include equity tokens and perpetual crypto futures.
Regarding tokenized equities, Coinbase stated the “total addressable market for this is massive” and that capturing just 3% of equities would double the current crypto market.
Coinbase's announcement of its everything exchange followed the SECs announcement today of “Project Crypto” which aims to bring the financial markets on-chain. This paves the way for companies like Coinbase to have a single license rather than a conflicting mess of licensing across states. Prior to Project Crypto, Coinbase and others were not able to launch super apps like WeChat and AliPay.
In anticipation of this announcement, Coinbase launched its super app called Base app. Base app aims to combine a wallet, trading and payment features, plus social media and messaging features into one app. The app rolled out with an identity verification system and a one-click checkout feature for USDC with partners such as Shopify.
Here is what was stated in the call in terms of the super app’s current user base:
“We now have a scalable blockchain with Base. There's decentralized messaging protocols, ways for people to build applications, and decentralized social media protocols.
So this is kind of a super app that we've put out there. It's in beta. There's actually 700,000 people on the wait list already. And so there's been a ton of demand for it and excitement about it.”
In addition to the Base app, Coinbase also announced this quarter a credit card that will earn between 2% to 4% back in Bitcoin for every purchase.
Perpetual Futures and Options:
Last quarter, we covered the acquisition of Deribit which was a major piece to Coinbase’s strategy to pull together spot, future and options trading onto one global platform. Deribit saw over $30 billion in open interest last year and $1 trillion in trading volume outside the of the United States, representing 75% market share. This acquisition makes Coinbase the #1 crypto derivative platform globally by open interest.
This quarter, Coinbase launched 24/7 trading of Bitcoin and Ethereum contracts, with management stating: “we launched perpetual style futures in the United States, which hit an all-time high in trading volume this week.”
Double-clicking on Stablecoins and the Shopify Announcement:
Despite there being many new announcements this quarter, stablecoins remains the largest opportunity for Coinbase in the near-term. Last year, stablecoins processed $30 trillion in settlements last year for 300% growth with management stating on the call its now a $40 trillion opportunity.
To participate, Coinbase launched a full-stack stablecoin payment solution for commerce platforms. The out-of-the-box infrastructure allows merchants to accept USDC payments even with little to no experience in developing crypto solutions. When compared to credit cards, USDC offers similarly fast settlement but with lower fees and is global.
Shopify was a launch partner as USDC is pegged 1:1 to the dollar which removes the unpredictable nature of other cryptocurrencies for merchants who want to accept crypto. As stated, the global transaction can settle quickly and for less cost than credit cards. For example, the Base Layer 2 can settle in 1 second for $0.01.
Interesting enough, Coinbase stated the much larger opportunity is B2B payments, representing 75% of cross-border payments – so something more along the lines of wire transfers and ACH payments : “One of the biggest areas that we're focused on first is really around B2B payments. A lot of this is cross-border. We think that actually cross-border payments is about a $40 trillion opportunity. B2B is 75% of that.”
Back-end infrastructure for Crypto:
Just as Amazon Web Services (AWS) offers backend infrastructure for the internet economy, Coinbase CaaS provides backend crypto infrastructure for banks, fintechs, and enterprises. The company has 240 institutions including newly announced PNC, JP Morgan, eToro, Revolut and Webull. Coinbase infrastructur or “rails” can be used for can be used for settlement, tokenization, on-chain payments and other crypto infrastructure needs where developing your own blockchain would not make sense (which is most of the time).
Conclusion:
The market will find reasons to sell Coinbase from time to time, yet it’s not too hard to envision Coinbase as the largest disruptor to traditional finance globally. Nearly every outdated facet of the financial sector is set to transform and Coinbase is positioned to play a central role. Although it would be easy to categorize Coinbase as a crypto exchange, it is transforming into something much more meaningful.
Near-term volatility is showing up in the technicals. We will alert you when risk favors accumulating again. Please join Knox every Thursday in his 4:30 p.m. EST webinar where he reviews buy/sell plans for crypto positions including Coinbase. To subscribe to Advanced with $100 off, please click here to email us or email premium@io-fund.com and mention code ADVANCED100.click here to email us or email premium@io-fund.com and mention code ADVANCED100.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in “COIN” at the time of writing and may own stocks pictured in the charts.
Robinhood stock is one of the year’s best performers, up an astounding 145% YTD and as much as 187% from its lowest close in April. The company continues to progress towards its goal of creating the world’s number one financial ecosystem including an all-in-one investment app with the potential to launch its own stablecoin.
Robinhood’s stock is significantly outperforming the broader indices both YTD and since April. Source: YCharts.YCharts.
Despite the ‘super app’ vision and diversification into new products and markets, Robinhood stock’s growth profile today is tied to three core levers: net interest revenue, crypto, and options trading.
Being first to market for lower friction crypto offerings for consumers is at the heart of Robinhood’s strong stock move YTD, suggesting it will play a crucial role in its long-term vision. Robinhood has many long-term catalysts, yet its high reliance on crypto could create near-term volatility as spot market volumes have stalled in Q2.
Robinhood Stock’s High Reliance on Crypto to Drive Revenue Growth
Crypto was a key factor in Robinhood reaching its first $1 billion revenue quarter in Q4, capitalizing on Bitcoin’s major push to the six-digit level. Robinhood has signaled its intent to diversify its offerings, but it remains a primary near-term revenue driver. As a result, Robinhood stock’s growth hinges on a strong crypto market stemming from its high reliance on crypto transaction revenues.
In Q4, crypto contributed more than 35% of Robinhood’s total net revenue, as a 455% surge in trading volume drove a 733% YoY surge in transaction revenue to $358 million. This made crypto Robinhood’s largest revenue stream in the quarter.
In Q1, crypto contributed more than 27% of total revenue, as transaction revenue doubled YoY to $252 million. Compare this to 2023, where each quarter, crypto contributed between 5% to 10% of total revenue with quarterly revenues below $40 million.
Robinhood’s crypto transaction revenue and trading volume declined quite sharply on a sequential basis in Q1, which could lead to more volatility for HOOD stock.
Crypto trading volume and transaction revenue are no longer as tightly correlated as they once were in 2021. Now, Robinhood is seeing much higher transaction revenue on lower volume, and much more volatile swings in revenue. These >$100 million swings in revenue in a quarter will lead to more volatility for the stock.
Due to this volatility, management intends to diversify within and outside of crypto: “we're diversifying the business outside of the crypto business, which will make us less reliant on crypto transaction volumes. But also within crypto, there's going to be diversification over time. So crypto itself will diversify and be less reliant on transaction volumes in the future.”
While this is certainly an ideal goal to have, other revenue streams are not yet mature enough or high-growth in nature to offset >$100 million swings in crypto. For example, net interest revenue growth will rely on growth in margin used, and overall interest revenue growth was just $36 million YoY in Q1. The Gold subscriber base also is not large enough to smooth out crypto-driven volatility at less than $40 million in revenue per quarter.
Looking ahead, softening crypto market volumes could set up softer stock price action for Q2, presenting a headwind to growth should it drive a >$100 million sequential decline in crypto transaction revenue.
Spot Crypto Volumes Waning in Q2
Spot market volumes slipped nearly (12%) MoM to $1.28 trillion in April, before rebounding to $1.47 trillion in May, according to data from The Block. For June, spot market volumes dropped more than (27%) MoM to $1.07 trillion, with daily exchange volumes fading since mid-May.
Global crypto spot market volumes declined (27%) MoM to $1.07 trillion in June, the lowest level since last fall, which could weigh on Robinhood stock. Source: The BlockThe Block
On a quarterly view, this data implies spot market volumes in the region of $3.82 trillion for Q2. This marks a (31%) QoQ decline from $5.54 trillion in Q1.
Quarterly spot market volumes declined more than (30%) sequentially to approximately $3.82 trillion in Q2.Source: The BlockThe Block
For Robinhood, crypto trading volume was $8.3 billion in April and $11.7 billion in May. Assuming June mirrors the spot market and declines around (30%) MoM, this would imply monthly volume of $8.2 billion. On a quarterly view, this implies Q2 volumes of ~$28.2 billion, down nearly (39%) QoQ.
Although crypto trading volumes rebounded in May, Robinhood may be on track to see a (39%) QoQ decline in trading volume in Q2. Source: RobinhoodRobinhood
Although Robinhood’s crypto transaction revenue growth has outpaced trading volume growth in each of the last five quarters, the company is not immune to declining market activity. Volumes are waning across the spot crypto market through Q2 and this dynamic is likely to weigh heavily on crypto revenue in the quarter.
How Crypto Trading Volume Trends in Q2 2025 Impact Robinhood’s Stock
This sequential decline in crypto trading volume could negatively impact Q2’s revenue. Should average take rate remain around 0.5% in Q2, in line with the previous couple of quarters, Q2’s crypto transaction revenue would be approximately $141 million based on June’s estimated volume.
Assuming mid-single digit sequential growth in net interest revenue to ~$305 million on strong deposits and margin use, 10% sequential growth in options revenue, and $160 million in equity and other revenues combined, this would project Q2 revenue out to $870 million.
Current analyst estimates are in the region of $900 million for Q2, so this would calculate out to a more than (3.3%) miss. Though there is a chance that Robinhood could outperform the spot market in June, the degree of the market’s decline implies that there is a much narrower path to revenue upside for Q2.
Acquisition of Bitstamp Boosts Robinhood’s Crypto Volume, Institutional Presence but not Revenue
Robinhood closed its acquisition of Bitstamp in early June, building upon its quest to expand both internationally and up the value chain to institutional clients. Bitstamp will help boost Robinhood’s trading volumes by unlocking Robinhood’s first institutional crypto business. Additionally, Robinhood’s new perpetual futures offering in the EU will be routed through Bitstamp’s exchanges, offering another lever for volume to grow in the future.
Robinhood paid $200 million in cash for Bitstamp, which reportedly generated $95 million in TTM revenue through April 2025 with 5,000 institutional and 50,000 retail clients. Bitstamp also recorded trading volume of ~$72 billion from July 2024 through April 2025, per The Block. This is just over 50% of Robinhood’s retail-driven $140 billion in trading volume over the same period.
Bitstamp’s volume tracked the broader market in Q2, falling more than (30%) QoQ from ~$26.8 billion in Q1 to ~$18.7 billion in Q2. June was the softest month in the quarter, declining (20%) MoM to $5.2 billion.
Based on estimated revenue and trading volumes, it’s likely that Bitstamp’s average take rate is slightly above 0.10%, versus 0.03% to 0.04% for Coinbase. At that estimated take rate, Q2’s revenue is likely in the region of $20 million, or slightly over 2% of Robinhood’s revenue and just a fraction of retail-driven transaction revenue. However, the closing date of the acquisition means Q2 impact will be minimal at best.
This mimics trends seen at Coinbase, where institutional investors drove 80% of trading volume in Q1 but less than 8% of transaction revenue due to lower fees. Down the road, even if Bitstamp can drive quarterly trading volumes above $30B+, its revenue contribution and impact to growth is likely to be overshadowed by higher-fee retail transactions.
Robinhood’s Quest to Create a Fintech & Crypto Super App
Robinhood’s ultimate goal is to create a global fintech ‘super’ app, an all-in-one investment platform offering 24/7 trading of crypto, equity tokens and more with cross-chain bridging and self-custody of assets. Robinhood’s array of crypto announcements at its June 30 event and expansion of perks offered to Gold subscribers support this super app vision:
Crypto Staking: Robinhood is launching crypto staking for eligible US customers, beginning with support for Ethereum and Solana; staking is available to EU and EEA customers.
Crypto Rewards Credit Card: Robinhood’s Gold Credit Card already offers US customers 3% cash back on purchases, but this fall Robinhood will allow cash back rewards to purchase crypto automatically. Coinbase has a similar product with Coinbase Card, a prepaid Visa debit card that offers crypto rewards instead of cash back.
Perpetual Crypto Futures Launch: Robinhood is launching perpetual crypto futures in the EU, providing customers continuous access to futures with up to 3x leverage.
Cortex for Crypto: Robinhood’s AI-powered investing assistant Cortex will be available for crypto later this year, offering insights, trends and market analysis to Gold subscribers for different tokens.
Limited-time Crypto Deposit Boost: Robinhood announced a limited time 2% crypto deposit boost for US and EU customers, in an aim to grow its crypto AUM. Robinhood noted some success with its recent 2% brokerage transfer match, with high engagement, large balances and low payback periods for these new customers.
Smart Exchange Routing: Robinhood will soon be using fee tiers for smart exchange routing, where crypto transactions are sent to the best exchange to get the best available price. With fee tiers, the more customers trade, the lower fees they will pay.
While it is far too early to see the impacts of equity tokenization, crypto staking and other new features, Robinhood has seen robust initial momentum for recent releases over the past few quarters. It’s fair to assume this will continue for new releases given brand loyalty and constantly increasing value for subscribers.
On Q1’s earnings call, Robinhood outlined strong initial momentum for Q4 and Q1 product releases, including futures contracts and prediction markets. The company is demonstrating an ability to quickly drive product adoption, which is likely to persist for its newest and upcoming releases.
For example, Robinhood said futures contract trading is accelerating, with 4.5 million contracts traded in April, more than the entirety of Q1. This was likely driven by increased market volatility and larger intraday swings in the markets. Additionally, prediction markets witnessed more than 1 billion contracts traded over the past two quarters. Management noted that the two new products were each already contributing around $20 million in ARR.
Robinhood’s Equity Tokenization Push with Arbitrum
While Robinhood has been a trailblazer when it comes to democratizing investing with zero-commission trades, it arguably made a larger splash at the end of June with its equity tokenization push. This deepens Robinhood’s presence in crypto, especially considering the company is aiming to launch its own Layer 2 blockchain to support equity tokens in the future.
At its To Catch a Token event on June 30, Robinhood unveiled that it was launching more than 200 Robinhood Stock Tokens, essentially blockchain-based derivatives tracking popular US stock and ETFs such as Nvidia, Apple, Microsoft and more. Robinhood launched the tokens on Arbitrum, though Robinhood ultimately plans to host the tokens on its own Layer 2 blockchain built on Arbitrum’s network.
The new Stock Tokens expand access to the US financial markets to EU users, offering 24/5 trading availability (soon 24/7 with Bitstamp) and liquidity. The tokens can be traded with minimal fees, just a 0.10% FX fee on the executed trade amount, and still pay dividends to holders.
US regulatory oversight remains in the works, as the SEC has not yet unveiled a framework for tokenized securities. However, the agency appears optimistic about tokenization, with Chairman Paul Atkins stating that tokenization is “imminent” and the SEC must focus on how to advance innovation in crypto. As such, the tokens are only available for EU users at the moment.
OpenAI’s Warning Highlights Challenges of Tokenizing Private Companies
Robinhood’s stock token move already stirred up some controversy — OpenAI cautioned consumers that the tokens are not real equity in the private startup, and that it did not endorse or partner with Robinhood on the launch. OpenAI’s warning highlighted the challenges of offering an ‘equity’ token in a private company and how ‘ownership’ would work, considering private equity is typically illiquid with funding rounds sometimes few and far between.
In Robinhood’s case, here’s how the tokens are structured:
“The stock tokens are legally classified as derivatives under the EU’s MiFID and MiCA frameworks and are not direct representations of equity ownership. Instead, they are backed by traditional custody arrangements, typically a U.S. broker, that facilitate token issuance and redemption through a mint-and-burn mechanism designed to mirror price exposure to the underlying asset.stock tokens are legally classified as derivatives under the EU’s MiFID and MiCA frameworks and are not direct representations of equity ownership. Instead, they are backed by traditional custody arrangements, typically a U.S. broker, that facilitate token issuance and redemption through a mint-and-burn mechanism designed to mirror price exposure to the underlying asset.
Valuation of the tokens tied to private companies remains a more complex issue, hinging on negotiated secondary market trades often limited to institutional or high net worth participants.” In the case of the OpenAI tokens, these were “enabled by Robinhood’s [$1 million] ownership stake in a special purpose vehicle.”
Robinhood CEO Vlad Tenev took to X to clarify that “while it is true that [OpenAI and SpaceX tokens] aren’t technically “equity” (you can see the precise dynamics in our Terms for those interested), the tokens effectively give retail investors exposure to these private assets.”
Theoretically, it is simpler for the stock tokens to track public companies as these can be backed by equity, although tokens may not correlate with stock prices 100% of the time. While Robinhood is aiming to bring private equity to everyday investors, the complexity of tracking private equity in a day-to-day fashion like public equities is a significant challenge.
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Robinhood’s recent push and lead in a new market projected to be worth trillions over the next decade.
A second explosive market Robinhood may enter.
How Robinhood is increasing utility for subscribers and what it means for growth.
The risks ahead from Robinhood’s valuation and slowing growth.
Asset Tokenization to be Worth Trillions
Robinhood’s move is significant in that it breaks traditional investing norms, offering global access to US stocks and private companies on the blockchain with wider trading hours, quicker settlement times and self-custody, fractional ownership backed by real shares. It also opens up a potentially massive market opportunity down the road with new fee-based revenue streams.
It's also a pivot that Coinbase has frequently talked about over the past few months, with CEO Brian Armstrong saying that tokenizing securities “offers a lot of promise to consumers around being able to trade 24/7, people internationally who maybe don't have easy access to this being able to trade, trading fractions of a share,” with real-time settlement.
Asset tokenization, including equities, real estate, or other real-world assets, promises a massive opportunity in the future. A report by Ripple and BCG projected the total tokenized asset market could reach as high as $18.9 trillion by 2033, though this is likely a very optimistic, blue-sky scenario. McKinsey estimates in a much less optimistic view that the tokenized market could reach ~$2 trillion by 2030. Either way, building a trillion-dollar-plus market on crypto rails from scratch within the next decade represents an immense opportunity for companies able to capture some of this growth.
Robinhood Positioned Well to Capture the Explosive Stablecoin Market
The stablecoin market has exploded over the past five years with over 30x growth in stablecoins in circulation, up from just $5 billion in 2020 to more than $150 billion today. Stablecoins settle trillions of dollars annually and are now the most-used crypto asset, surpassing Bitcoin in transaction volume on many blockchains.
Coinbase noted some strong stablecoin metrics in Q1, with average USDC held across its products surging 49% QoQ to $12.3 billion on improved USDC integration on its platform. Since launching its current rewards program two years ago, average USDC balance has grown 3x while monthly transacting users holding USDC doubled. Coinbase also reported nearly 51% YoY and 32% QoQ growth in stablecoin revenue to $297.5 million.
Robinhood’s tokenization partner Arbitrum is seeing stablecoin adoption on its mainnet at record highs, recently at $6.8 billion. This makes it the fifth-largest blockchain for stablecoins, behind Ethereum, Tron, BNB and Solana. Arbitrum also recorded a major milestone in early July, processing more than $545 billion in swaps by DEXs on its chain.
While Robinhood has not publicized stablecoin volumes on its platform, it remains well positioned to capture growth in this market. The company already uses stablecoins to help power weekend settlements, and late last year Robinhood was reportedly considering launching its own stablecoin. Such a plan could represent a huge opportunity in another explosive, trillion-dollar potential market over the next few years, and be a top catalyst for the firm alongside global trading.
Increased Real-World Utility for Robinhood Gold Members
Aside from 4% APY on savings and up to $2.5 million in FDIC insured deposits spread across its partner bank network, Robinhood is increasing real-world utility for Gold members with recent and upcoming product launches.
Robinhood recently partnered with Sage Home Loans to pilot offering its subscribers mortgage rate discounts and closing cost credits, easing the process for home ownership. With Sage, Robinhood is offering access to some of the lowest mortgage rates on the market, such as 75 bp below national averages, providing tens of thousands in savings on interest across the loan duration.
Robinhood launched its new wealth management service Strategies in March, and is working to launch its private banking service, Banking, later this year. Strategies offers actively managed diversified stock and ETF portfolios tailored for risk tolerance, tax advantages, future return simulations, and more for a 0.25% management fee capped at $250 annually. Robinhood revealed at the end of April that it already has 40,000 Strategies customers and over $100 million in assets, a quick ramp, but signaling only a $10 million annual revenue opportunity.
Banking aims to provide customers with a private banking experience typically reserved for the ultra-wealthy, per Robinhood. Customers will have access to professional tax services, estate planning, cash delivery to their doorstep, transfers to 100+ currencies, and access to luxury travel options.
Despite creating immense value for subscribers and progressing rapidly with new features launches, Gold’s contribution to Robinhood is rather minimal, even if adoption rate doubles.
Yet Robinhood Gold Contribution is Minimal
Gold’s low contribution to Robinhood’s topline is partly due to its low fee structure, with Robinhood charging just $5/month or $50/year for Gold membership. Even though adoption rates are approaching the low teens, Gold contributes barely 4% of revenue.
There’s no doubt that Robinhood’s low-fee, high-value strategy is paying off in terms of subscriber growth, with paid subscribers rising 90% YoY to 3.19 million in Q1. This represented approximately 1.5 million new adds in just one year, with 550,000 coming in the last quarter alone. The acceleration is Gold subscriber growth is quite visible over the past two years – Robinhood has 11x sequential adds, from 50K sequentially in early 2023 to 550K last quarter.
CEO Vlad Tenev also noted that subscribers had already risen to 3.3 million as of April, surpassing a >12% adoption rate. New customers to the platform in Q1 adopted Gold at a much higher rate at nearly 33%.
Robinhood’s Gold subscribers are accelerating, with 550,000 net new adds in Q1 to a total of 3.19 million subscribers.
However, Gold’s topline contribution is minimal despite its robust subscriber momentum and corresponding revenue acceleration. In Q1, Gold revenue was $38 million, up 65% YoY, lagging subscriber growth by 25 points. Annualized revenue was $152 million, up from $90 million a year ago.
Annualized Gold revenue was $152 million in Q1, rising 65% YoY.
Gold revenue has accelerated alongside subscriber growth, but the disconnect between subscriber growth and revenue growth is clear. Subscribers are 2.7x higher versus the start of 2023, yet revenue is only 2.2x higher. And despite this growth, Gold is only contributing less than 5% of revenue.
Gold’s low fee structure means that Robinhood would have to drive significantly higher adoption for it to become a much larger revenue stream. At 12.4% adoption, quarterly revenue is only $38 million, so even doubling it to 25% adoption, quarterly revenue is likely to be around $80 million. Assuming doubling subscribers takes five to six quarters based on current momentum, Gold would still be contributing less than 10% of revenue.
While SaaS can be an important growth lever, it’s simply not at the level to offset crypto-related volatility, where revenue is swinging >$100 million in a quarter. Additionally, the time it would take to build out the Gold side to such a degree to offset said volatility would be far too long to mitigate near-term softness, such as what we are seeing in Q2.
What This Means for Robinhood
Looking at the bigger picture, Robinhood has done an incredible job in transforming its business, with Gold subscriber momentum accelerating, strong topline growth, and strong margins, earnings and cash flow.
Robinhood’s TTM operating margin and EPS have improved significantly over the last two years.
TTM operating margin is approaching 40%, a substantial improvement from less than 7% a year ago and (72%) two years ago. Even when crypto was in favor in 2020, when Robinhood was still private, operating margin was just 1.4%. This strong expansion in operating margin recently has driven TTM EPS to $1.76, up nearly 12x from $0.15 a year ago and a major improvement from ($1.30) two years ago.
Yet despite the remarkable improvement in Robinhood’s fundamentals, the question that remains here is whether the extended valuation can digest softer revenue growth in the upcoming quarters. Q2’s sequential decline in spot market volume points to a possible softer Q2 versus estimates despite Robinhood’s strong product momentum, as other revenue streams likely cannot offset this degree of weakness in crypto.
Robinhood is now valued at 64x forward PE and 22.7x forward PS, a rapid expansion of multiples since the start of the year. Source: YCharts.YCharts.
Robinhood is trading at its highest valuations, at 64x forward EPS and 22.7x forward revenue. Forward PE is stretched as EPS is forecast to decline (16%) YoY to $1.30 as Q4 2024 recognized a significant $369 million tax benefit ($0.41 impact). Revenue is expected to increase 25% YoY to $3.70 billion, though the stock will lap tough comps in Q4 and Q1 next year.
Against tough comps, Robinhood is expected to see revenue growth decorate to (5%) YoY in Q4 2025 and 9.7% YoY in Q1 2026.
Revenue growth is expected to remain strong above >30% YoY until Q4, when Robinhood faces its $1 billion crypto-driven comp. As a result, estimates point to a (5%) YoY decline exiting the year. Q1 2026’s growth is also expected to be minimal as Robinhood laps another strong crypto quarter, with growth currently estimated below 10%. However, it’s important to remember that the crypto market can shift in an instant, which could have a dramatic impact on revenue if volumes pick up significantly.
Conclusion
Overall, Robinhood is building the foundation to reach its ultimate goal of creating a global fintech super-app, remaining at the forefront of the innovation curve with continual product releases and leading in the industry’s asset tokenization push.
However, in the near-term, its reliance on crypto is a double-edged sword. A surging crypto market vaulted Robinhood to its first $1 billion quarter in Q4, though weak volumes now present a real headwind to Q2’s growth coupled with an extended valuation.
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Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
From the 2022 low, Solana has been tracing a very large and clean 5-wave uptrend. Note the back and forth through 2023, which was followed by a vertical push higher on max volume and momentum. This is standard 3rd wave behavior, which is the most powerful part of a 5-wave uptrend. The question we now have is: has the final 5th wave swing completed, which would complete the larger uptrend, or do we still have a final swing to new highs in our future?
This question can best be outlined with the following scenarios:
Blue – The 4th wave completed in April. This puts us in the early stages of the 5th wave setup to new highs. Within this larger 5th wave, we have the first wave in place and are currently in the 2nd wave. If any further weakness holds over $111 – $105, we should continue higher toward the $400 – $500 region to complete wave 5.
Red – The 5th wave completed in January of 2025. This means that we might see one more swing higher, but it will not make a new high. This will be followed by a direct drop toward the $74 – $48 region.
If we zoom into the current bounce off the April low, we can see that the push higher has taken the shape of a 5-wave pattern. This supports the bullish blue count listed above. We are now in a 3-wave retrace, which appears to be targeting $117 – $105 region. For the blue count to hold, we must hold $105. Any sustained break below this level will suggest that the bullish setup is breaking in favor of the red count.
In conclusion, our game plan will be to buy on the current drop around our target zone. We will hold this position with a stop and look to close it we move toward the overhead targets listed in the blue count.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Since December of 2022, when Bitcoin was trading in the $16,000 region, we went against the crowd and called for a new bull cycle. Since that report, we released seven additional articles, confirming Bitcoin as a buy, and even sent out 13 buy alerts to our premium members at key spots between $25,000 and up to $60,000.
What separates our firm is the ability to follow our process regardless of the market’s emotions around extreme lows as well as highs. For example, in our last Bitcoin article in October of 2024, titled “Bitcoin Bull Market Intact as Risk Increases,” we started to shift our tone to a more cautious stance than prior reports.
“While we still believe the original price targets of $106,000 – $190,000 are attainable, we do believe risk has increased. As a result, we will likely reduce some risk on the next rally to all-time highs.”
At the time, Bitcoin was trading in the $70,000 region and had not yet broken out over its March high of $73,835. It was dead money for most of 2024, and not a topic of interest. At the time of our October report, it was down nearly 5% from its March high, while the tech focused NASDAQ-100 was up nearly 12% in the same time frame. Yet, our research was firm that Bitcoin had at least one more swing to the $82,000 – $106,000 region.
In early November, Bitcoin jumped nearly 50% in just over 2 months to a new high of $109,354, which was just over our $106,000 target. As stated, we used that move to reduce our position by 50%, as we maintained a cautious stance due to mounting risk.
This cautious approach stems from technical indicators suggesting the current rally is likely in its final stage. While both on chain and technical analysis support another push higher, if we do get this swing, it will likely be the final push higher before a period of prolonged volatility begins.
This is a contrarian opinion, as the narrative around Bitcoin is quite positive right now.
However, when we look back at the history of Bitcoin, narrative-based optimism has historically marked major tops, not sustainable breakouts. As such, we emphasize disciplined risk management and view sentiment extremes as a cue to protect gains, not chase headlines.
The Hidden Risk of Following Bitcoin News Headlines
Regarding equities, investors can lean into fundamental analysis to identify what to buy and sell, such as the growth rate of a company compared to competitors, do key metrics support sustained growth, is there operational efficiency, and is there a path to profitability? These are all questions that must be answered to justify the quality of a stock.
Regarding Bitcoin, there is no management team or earnings calls to guide investment decisions. For this reason, investors tend to lean into news events and narratives to guide investment decisions. There is an obvious logic around this strategy, which we are witnessing in real-time. The current narrative surrounding Bitcoin is quite bullish. Just in the last few months, we have seen:
The U.S. government announced a Strategic Crypto Reserve. Regarding Bitcoin, they will retain all seized Bitcoin, which is valued at approximately $20 billion.
Several petty SEC Lawsuits have been dismissed.
New leadership at CFTC and SEC that are supportive of digital assets.
Progressive bills being introduced, like FIT21 and the Bitcoin Act.
Thematic investing suggests that these developments are tailwinds for Bitcoin that should support higher prices from here. However, if we look at history, Bitcoin has an uncanny inclination to do the opposite of what the news-based narrative at the time suggests. In other words, it likes to top on bullish news and bottom on bearish news.
Against popular belief, Bitcoin’s history shows that it likes to top bullish narratives and bottom on bearish ones.
December 10th, 2017 – CBOE launches first Bitcoin futures. It was believed that this marked a new era in Bitcoin, opening easy access to Wall Street. One year later, Bitcoin was -83% lower.
November/December of 2018 – Three of the world’s largest Bitcoin miners file for bankruptcy due to Bitcoin’s price going below mining cost. The narrative that followed is that Bitcoin’s network would be altered and never fully return. One year later, Bitcoin was approximately +150% higher.
February 9th, 2021 – Elon Musk announces that Tesla has added $1.5 Billion in Bitcoin to its balance sheet and sets out plans to accept Bitcoin for payments. It was believed that institutions and companies would follow, creating growing demand. One year later, Bitcoin was approximately -40% lower.
September 7th, 2021 – El Salvador is the 1st country to accept Bitcoin as legal tender. It provides free Bitcoin wallets to its citizens and establishes plans to mine Bitcoin using geothermal heat from active volcanoes. It was believed that demand would only grow, as more countries followed along. One year later, Bitcoin was down -61%.
November 11th, 2022 – The world’s 3rd largest crypto exchange, FTX, files for bankruptcy, after allegations of extensive fraud led to insolvency. It was believed that this scandal would keep investors away from Bitcoin for years to come. One year later, Bitcoin was up +510%. Notably, this was around the time our firm stated Bitcoin would start to rally again.
Thematic investing certainly has its benefits, and the I/O Fund uses it as one of many blended techniques. However, when used alone, it instills too much confidence and can be detrimental – especially with crypto.
Instead, we have found technical analysis and on-chain analysis to be the most effective methods for successfully participating in Bitcoin’s meteoric rise, while also mitigating the inevitable volatility.
Decoding Bitcoin’s Price Moves Through Technical Analysis
If an investor cannot lean into fundamental analysis with Bitcoin, and narratives do not affect the price swings of Bitcoin, investors are left with two assumptions: 1) the price swings are random and have no logic to them; 2) there is a logic behind these swings, which can be deciphered and navigated.
When viewed through the lens of technical analysis, it becomes apparent that the latter is true. What tends to drive Bitcoin price actions is sentiment, which technical analysis is designed to address. Sentiment is simply analyzing herd mentality, which manifests in repeatable patterns.
Regarding the current sentiment pattern in play, Bitcoin has been tracing a large degree 5-wave pattern off the 2022 low, and we have either completed the final 5th wave or have one more swing higher to complete the 5th wave.
In a 5-wave pattern, the 3rd wave is the most powerful part of the trend. It is the moment when everyone realizes at once the direction of the trend – shorts cover at the same time while longs panic buy. This causes a vertical move in price and tends to coincide with peak volume expansion and momentum.
The 5th wave is for those who missed out and think that the trend is just starting. It is the riskiest part of the trend and should only be bought with an established exit plan – i.e., brief to intermediate trade. Here, we tend to see price make a higher high, but on lower volume and lower momentum.
If you look below, this is exactly what we are seeing in Bitcoin’s current price trend.
The Key to Elliott Wave Analysis is to locate the 3rd wave. This is the most vertical part of the trend, met with max volume and momentum. Then, work backwards from there. By doing this, Bitcoin is clearly in the final 5th wave of the bull cycle that started in 2022.
The period from October 2023 – March of 2024 is when price went vertical. It’s also the period where we saw max volume and max momentum. This is the 3rd wave.
Now, look at the most recent move to new highs. This was made on lower volume and lower momentum, confirming that we are in the final stage of the bull cycle that started in 2022. Once again, this analysis runs contrary to the bullish narratives surrounding Bitcoin currently, suggesting that we are closer to a meaningful top than low.
Bitcoin Price Forecast: Three Potential Outcomes
In our last report, we stated that the 5-wave pattern off the 2022 low was “incomplete until we push to new all-time highs,” meaning that the odds were high that we’d see a push higher. Now that we made this push to new highs, we have the minimal waves in place to constitute the larger uptrend is complete.
This scenario is outlined in Red in the chart below.
Three potential scenarios in Bitcoin as we enter Q2 of 2022. The most likely is that we push to new high; however, for the first time in over 2 years, we now have a fully formed 5-wave pattern off the 2022 low. This increases risk, as a case can now be made for a meaningful top.
Here, the push to $109,354 was the final 5th wave, providing us with the minimum number of waves needed to satisfy a full 5-wave pattern. This scenario would see Bitcoin fail below $102,000 and then turn lower toward the $60,000 region. We would then make a series of lower highs into 2026, until we see the final flush. This scenario would be an accelerated push into our long-term buy-and-hold targets, which we have been discussing in our premium service for several months.
While I do not think this outcome is the most probable given the price action, it still must be respected, which is why it is on my chart. In the years that I have provided free Bitcoin analysis; this report is the first one where I can present a fully formed and completed 5-wave pattern off the 2022 low. For this reason, we are more focused on risk management at this stage of the game, as any long attempts will come with stops and overhead targets where we will take gains.
The two scenarios that I believe are most likely are outlined in Green and Blue.
Green – We are in the final 5th wave. We need to breakout over $102,000 and then break above $109, 354. In this scenario, our targets are at least $120,000. We would use this move to reduce most of our position.
If this scenario is going to play out, any further weakness that we see needs to hold over $79,900. Below here and here and we will shift into the below scenario.
Blue – This count mimics the Red one presented above for the next move lower. Both counts will fail under the $102,000 region, then head toward the $60,000 region. Where this scenario differs from the Red one is that from the $60,000 region Bitcoin will setup for the final 5th wave to the $120,000+ region.
Onchain Analysis
Though Bitcoin does not provide classical fundamental analysis, it does have its own unique brand of internal dynamics called onchain analysis. What this type of analysis does is examine the blockchain data to better understand transaction patterns, asset movements, and network health.
It is a relatively new brand of crypto analysis, which we find helpful in helping us better risk manage our position. When it comes to onchain analysis, we favor the work of WealthUmbrella, who has done some comprehensive and remarkable work in this field. The below comments are from Vincent Duchaine of WealthUmbrella.
Since late December of 2024, our stance has remained that Bitcoin likely will see higher prices before confirming a cyclical top. This lines up best with I/O Fund’s Green and Blue scenarios presented above.
Our analysis suggests that we are in a prolonged correction within the ongoing bull market that began with the November 2022 low. This is reinforced by our three Market Top indicators, each of which analyzes a different aspect of the Bitcoin blockchain ecosystem. These indicators are adjusted to account for Bitcoin’s structural evolution over time, and none have reached levels that typically align with a major cycle peak.
This view is further reinforced by our primary Overbought/Oversold Indicator, which is designed to flag probable highs and lows at any stage of a trend, not just at major tops or bottoms.
During the recent pullback, this indicator bottomed within the zone where corrections have found a low in the past. What is key, is that at no point did this indicator break into the levels that we see during more severe periods of volatility, like 2021 – 2022, suggesting this is only a correction.
Regarding supply and demand dynamics, the flows that we track support the April 7th low holding, for now. However, we’re not currently seeing the kind of supply-demand undercurrents that would point to an imminent breakout to new all-time highs. Considering this, we view the current supply/demand dynamics to be healthy, and typical of what we see prior to a breakout higher.
A few examples of these healthy supply/demand dynamics are listed below:
The number of newly created addresses with a non-zero starting balance. This metric measures new interest in Bitcoin. It dropped considerably once the option to invest in ETFs hit the market; however, it has been steadily moving higher while Bitcoin remains in a correction.
This suggests that investors’ interest in Bitcoin continues to remain stable, regardless of the current volatility in price. Even more encouraging, as shown in the chart above, the current rate of new address creation is on average 25% higher than last summer’s low, with even the weakest reading during the recent “tariff” sell-off still sitting 17% above that baseline.
The percentage of coins that have not moved in over a year. This metric measures the behaviors of long-term holders of Bitcoin. It began moving higher in mid-February, suggesting accumulation. This led to a sharp rise in the percentage of coins that haven’t moved in over a year—from 61.7% to 63.61%—by April 2nd.
ETF flows. The current flows in the existing ETFs are not currently in a favorable posture. Bitcoin ETFs were a major driving force behind the price surge in early 2024, but they also contributed significantly to the choppy conditions that emerged around the start of the year. In fact, the first three months of 2024 saw the worst daily outflows in the short history of these ETFs, as illustrated in the chart below:
However, these outflows peaked on March 10th, coinciding with Bitcoin’s initial attempt to bottom. Since then, outflows have meaningfully subsided, settling into neutral territory around zero net flow, and then shifting into meaningful inflows starting April 21st:
Conclusion:
In conclusion, while the narratives around Bitcoin support higher prices, history has shown that investing in Bitcoin without risk management can be painful. Bitcoin tends to do the opposite of what the narratives suggest at major turning points. To better prepare for the immense volatility in crypto, we lean into our process of analyzing sentiment through technical analysis and shifting our risk profile based on where we are in the uptrend.
Whether we hold the April 7th low, or see one more drop to the $60,000 range, we believe Bitcoin still has another move higher. This is supported by the onchain analysis provided by WealthUmbrella, who lines up with our two bullish scenarios. While odds support this rally, considering it will be the final 5th wave in this multi-year bull cycle, we will use it to reduce risk further, locking in well-deserved gains, and raising cash for lower prices.
📈 If you are sitting on outsized gains in Bitcoin with no risk management plan, or interested in our long-term buy for Bitcoin, then we encourage you to join us this Thursday, May 15h at 4:30 PM EST for a premium webinar. We will discuss where we see the crypto market going, our targets for the last swing higher in the current bull cycle, and where we believe the next bull cycle will begin. 👉 Sign up heregn up here
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Coinbase reported a soft Q1, with revenue missing estimates by 3.1% as trading volumes declined (13%) sequentially. Subscription revenue also came in at the low end of guidance in the quarter, with Coinbase forecasting subscription revenue to fall sequentially in Q2.
Where Coinbase stands apart is its cash of $8.05B, which allows the company to execute on an aggressive M&A strategy. Earlier in the day, Coinbase announced the largest crypto acquisition in history of $2.9 billion for Deribit, a Bitcoin and Ethereum options platform. This move expands Coinbase’s derivatives presence, as Deribit’s 2024 trading volumes nearly doubled YoY to $1.2 trillion. For comparison, Coinbase drove more than $800 billion in derivates trading volume in Q1. The deal was also at a large discount from previous reports in January, where it was expected to command a $4-5 billion price tag.
Adjusted EBITDA margin was 45.7% with $930 million in adjusted EBITDA profits and $527 million in adjusted net profit, which helps to illustrate the rare, quality fundamentals that Coinbase offers in the crypto sector.
Looking forward, April is tracking lower than expected with transaction revenue of $240 million, down 12% month-over-month in April compared to global spot transactions down 13% MoM.
As we’ve pointed out in the past, Coinbase is largely dependent on volatility and asset prices, and is not tied as much to the results of an earnings report.
Revenue
Coinbase reported 24.2% growth in revenue to $2.03 billion in Q1, missing estimates by 3.1%. Despite increased crypto volatility and Bitcoin’s new all-time high in January, crypto market cap declined (19%) QoQ and industry trading volumes dropped (13%) QoQ, weighing on growth. Coinbase outperformed the broader industry as its spot trading volume declined just over (10%) QoQ to $393.1 billion. Derivatives trading volume was $803.6 billion in Q1.
Q1’s revenue growth slowed dramatically from Q4’2 138% rate, though this type of volatility is not unusual for the crypto industry. Q2 is currently expected to see revenue rebound slightly to 29.6% YoY.
Key Metrics
Trading Volume
Trading volume rose 26% YoY but declined (10%) QoQ to $393.1 billion, with institutional trading volume remaining steadier in the quarter.
Institutional trading volume declined just (9%) QoQ but remained 23% higher YoY at $315 billion. Consumer trading volume declined (17%) QoQ but was 37% higher YoY at $78 billion. According to Coin Gecko, spot trading volume on centralized exchanges was down (16.3%) QoQ which is aligned with what CB saw on the consumer side, mainly driven by Ethereum and Solana, which saw steeper losses than Bitcoin in Q1.
Transaction Revenue
Transaction revenues declined more than trading volumes in the quarter, with Coinbase pointing out a few factors impacting growth on the institutional side. Coinbase’s global transaction revenue rose 17% YoY but declined (19%) QoQ to $1.26 billion.
Consumer transaction revenue matched corporate growth rates at 17% YoY and (19%) QoQ, with revenue of $1.10 billion in Q1. Institutional transaction revenue grew slower, at 16% YoY and (30%) QoQ to $99 million.
Coinbase said that trading volumes in the quarter were “more concentrated among market makers and liquidity providers which tend to have lower fee rates,” while derivatives also weighed on growth. Coinbase is prioritizing building its derivatives business via trading rebates and incentives to boost liquidity, thereby offsetting fees from trading.
Regarding the disconnect between institutional volume down (9%) and institutional revenue down (30%) QoQ, the CFO stated: “There are 2 factors which drove the discrepancy between the revenue decline and the volume decline. The first is the growth in our derivatives trading business. As we build this business, we are offering trading rebates and incentives to build liquidity and acquire customers. Our focus on growth is causing a decline in the transaction revenue that we get from derivatives trading as these are contra revenue and recorded in the institutional transaction revenue line item.”
Other transaction revenue was flat QoQ at $68 million in Q1. Transactions on Base rose 16% QoQ, though the average revenue per transaction decreased 21% QoQ.
Subscription and Services Revenue
Subscription and Services revenue came in at the lower end of Coinbase’s guided range in the quarter, with management saying lower blockchain rewards revenue partially offset stablecoin and Coinbase One revenue.
Revenue was $698.1 million, versus its guide for $685-765 million. Growth was 36.6% YoY, decelerating from 70.8% YoY in Q4, yet is forecasting to decelerate to the mid-single digits in Q2.
For Q2, Coinbase projected Subscription and Services revenue between $600 and $680 million, for YoY growth of just 6.8% at midpoint, a 30 point sequential deceleration. Even at the upper end of Coinbase’s guide, revenue growth would be just 13.5% YoY. Coinbase said the forecast anticipates blockchain rewards revenue to more than offset stablecoin revenue growth.
Within Subscription and Services revenue:
Stablecoin revenue rose 50.8% YoY and 32% QoQ to $297.5 million. Coinbase said that average USDC held across Coinbase products increased 49% QoQ to $12.3 billion on better USDC integration on its platform.
Blockchain rewards revenue increased 30.3% YoY but decreased (9%) QoQ to $196.6 million, weighed down by lower average crypto prices in Q1, primarily Ethereum and Solana.
Interest and finance fee income decreased (5.4%) YoY and (4%) QoQ to $63.1 million, as higher balances were partially offset by lower rates. Coinbase added that Prime Financing revenue declined as loan balances declined with customers deleveraging due to volatility, though onboarded clients rose double-digits QoQ.
Other subscription and services revenue rose 5% QoQ to $141 million. Coinbase announced that it has now grouped Custodial Fee revenue in this sub-segment.
Margins
Operating margin shrunk more than 10 points on a YoY and QoQ basis, while net margin fell to the low single-digits as Coinbase recorded nearly $600 million in losses on crypto investments.
Operating margin was 34.7% in Q1, down from 45.5% in Q4 and 46.4% in the year ago quarter, as operating expenses rose more than 51% YoY in the quarter. According to the CFO on the call: “Our total operating expenses were $1.3 billion, up 7%, primarily driven by higher variable expenses resulting from elevated market maker activity earlier in the quarter, as well as losses on our crypto assets for operations.”
Net margin was 3.2%, down from 56.8% in Q4 and 71.9% in the year ago quarter, primarily due to the crypto investment losses, the majority of which were unrealized.
The company is introducing a new metric called adjusted net margin which excludes the tax adjusted impact of crypto investment portfolio gains or losses. The CFO stated the adjusted net income was $527 million this quarter.
Stock-based compensation was $191 million, or just over 9% of revenue in Q1. For Q2, Coinbase guided for SBC of ~$195 million.
EPS and Adjusted EBITDA
Coinbase places an emphasis on adjusted EBITDA due to fluctuations that can arise from its crypto asset holdings, such as what it witnessed in Q1. Adjusted EBITDA was $930 million for a 45.7% margin, down from a 56.8% margin in Q4 and a 61.9% margin a year ago.
Due to impact from its crypto holdings, Coinbase’s GAAP EPS was $0.24, well below the $1.91 estimate for the quarter. Adjusted EPS was $1.94, slightly below estimates for $1.98.
Cash and Balance Sheet
Operating cash flow was weak in Q2, though Coinbase’s liquidity profile remained strong.
Operating cash flow was ($187.3) million for a (9%) margin, its first cash outflow in five quarters. This is also a stark contrast to the 21.5% OCF margin from a year ago and a 42.5% margin in Q4.
Cash and equivalents totaled $8.05 billion, with Coinbase noting it had a total liquidity profile of $9.9 billion when including its net USDC balance of $1.86 billion. Debt remained steady at $4.24 billion.
Q2 Outlook
Coinbase said that April transaction revenue was ~$240 million, while spot transaction volume was down (12%) MoM, slightly outperforming the broader industry at (13%) MoM. According to the CFO this is aligned with global spot trading trends: “Our spot transaction volume declined approximately 12% month-over-month in April, and this was similar to global spot volume, which was down approximately 13% over that same time period.” Our checks show that Binance declined 18.8% MoM yet popular/rising platform Gate.io increased about 14% MoM.
Subscription and Services revenue was guided at $600-680 million, with Coinbase expecting QoQ growth in stablecoin revenue “to be more than offset by a decline in blockchain revenue due to lower crypto asset prices.” Coinbase added that to-date in Q2, Solana and Ethereum have already declined (25%) and (36%) compared to their Q1 averages.
Earnings Q&A:
Deribit Acquisition:
The Deribit acquisition for $2.9 billion will be a mix of $700M in cash and 11 million shares. According to the CFO, the acquisition will be adjusted EBITDA accretive.
Deribit saw over $30 billion in open interest last year and $1 trillion in trading volume outside the of the United States, representing 75% market share. This aligns with Coinbase’s global strategy as the company also shared (separately) they are growing rapidly in Argentina and India. According to the opening remarks: “This makes Coinbase the #1 crypto derivative platform globally by open interest. And it's our biggest move yet to accelerate our international road map and build out this comprehensive trading platform.”
It’s also a strategy to pull together spot, future and options trading onto one global platform. According to the CEO, there is strong cross-selling opportunity:
“Brian Armstrong CEO:
Yes. And Ken, I'll just add real quick on your cross-selling point. I think this is really important. So a trader can actually go in and hedge futures position with options without having to switch platforms. So that's why we think that there is a cross-selling opportunity. And this is — improves the efficiency but also improves trading volume if they can do that all in 1 platform.”
However, as of now, the United States is a restricted jurisdiction for options trading unless on a CFTC-regulated platform or a SEC-regulated platform, but the CEO foresees approval coming soon for Coinbase: “We've been working very closely with the CFTC to turn and get perpetual futures live in the U.S. That's going to take a little bit longer, but we are — we have 1 step in the right direction.”
USDC Sees Market Cap of $60B
Circle is a fintech company known for creating USDC with Coinbase sharing revenue of USDC as a backer of Circle. In the most recent quarter, the stablecoin USDC hit a market cap all-time high of $60 billion with USDC held on the Coinbase platform increasing 49% QoQ to $12 billion. It was also stated that the number of monthly users holding USDC has doubled and the average USDC balance has tripled.
Although stablecoins contribute low revenue right now of $297.5 million, it helps to diversify Coinbase’s revenue during periods of volatility since USDC remains at $1 and is used across payment platforms.
According to the opening remarks: “In Q2, we'll be onboarding the first businesses to our pilot, enabling them to make stablecoin pay-ins and payouts. Given Coinbase's long history building crypto infrastructure, custody trading and our network of bank partners around the world, we think we're well positioned to power stablecoin payments for many businesses.”
Binance recently joined the partnership with the CFO stating adding a large distribution partner will result in more liquidity and global adoption: “The rationale for adding distribution partners is we believe that we mean it drives liquidity, it drives global adoption. There are more and more places for customers to onboard and offboard USDC and to engage in products and services. These network effects, larger market cap, deeper liquidity, more places for customers to exchange, we think, is going to drive overall growth and opportunity for USDC.”
Conclusion:
Coinbase did not offer the most exciting earnings report this quarter, but it also does not matter much given Coinbase’s stock moves intraquarter as its tied closely to crypto trading volumes and asset prices.
It does not take a stretch of the imagination to see the crypto empire this company is building. Coinbase acts as a leveraged bet on Bitcoin yet is also diversifying beyond spot trading to include subscription services, stablecoins, derivatives and now options trading. As digital assets gain broader adoption, Coinbase is positioned to participate across every major touchpoint: from trading and custody to staking, payments, and Layer 2 scaling with Base. We've covered Coinbase’s more durable business model in the past here.
Notably, it’s rare to see an opportunity in the crypto sector offer quality fundamentals. Not only does this help the stock to withstand volatility when other crypto assets are being slammed, but its large cash reserves can be leveraged to grow the empire. This piece – the cash – should not be overlooked when evaluating the strength of the stock and the company’s long-term prospects.
What’s Next on our New Discovery Tier …
Next week on our new Discovery tier, we’ll spotlight some of the strongest Q1 earnings reports from companies not currently in our portfolio. If you’ve seen a stock surge after hours and are wondering how it stacks up — or whether it has real long-term potential — our Discovery tier is built just for that: surfacing compelling new opportunities.
To upgrade or join the Discovery tier, email us at Premium@io-fund.com or click here to get started. Current Pro and Advanced Members can subscribe with 40% off by mentioning code DISCOVERY40 when you email us or by clicking here to email directly.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Core Scientific laid the footprint for strong growth in HPC (colocation) revenue by the end of the year as it begins to bring online billable capacity for CoreWeave and subsequently rapidly ramp capacity of 250MW. This is the riskiest stock in our portfolio when you consider the current fundamentals are (at face value) of poor quality with revenue declining (55%) YoY and (16%) QoQ to $79.5 million this quarter compared to $179.3 million in the year ago quarter. The company reported an operating loss of $42.6 million and negative adjusted EBITDA of ($6.1) million.
We’ve covered Core Scientific transitioning from Bitcoin mining operations to data centers in more detail here. The company noted that it remains on track to deliver 250MW of billable capacity to CoreWeave by the end of 2025, with the first 8MW tranche to be delivered by the end of May, expanding 5x to 40MW by the end of Q2. According to the earnings call, the Denton facility is a site CoreWeave is working on with Open AI with a recent $12 billion investment.
On the call the company stated: “At full scale, the site will represent around 260 megawatts of billable capacity. To put that in perspective, we broke ground in January, and in just roughly four months, we've achieved meaningful progress. It's a powerful demonstration of our ability to execute quickly and at scale, with before-and-after pictures included in our updated investor presentation.”
Refresher on Core Scientific's Business Model
Before we go into the earnings report, I think it’s appropriate to pause and review Core Scientific's business model given it’s quite unique, and to also help translate what the company is setting up to do in terms of future revenue.
Core Scientific was a major Bitcoin miner that is transitioning to power AI data centers with their primary customer being CoreWeave worth about $10.2 billion when fully realized over a 12-year period for 590 MW of HPC infrastructure. Roth MKM sees CORZ having about $1.6B in revenue by 2027, up from $473M expected today.
CoreWeave, the primary customer, fronts the capex which allows Core Scientific to grow capacity, without which, the business model would not work as CORZ would struggle to raise the level of capital required to acquire more sites and modify the existing infrastructure.
Here is what was shared regarding CoreWeave putting up the capex costs in the most recent earnings call: “From a capital perspective, CoreWeave is funding virtually all of the CapEx associated with these deployments. Our only direct capital outlay on the contract is the $104 million associated with the 70-megawatt expansion we announced during our last earnings call. That structure significantly reduces our capital burden, keeps our balance sheet leverage like compared to peers and gives us the flexibility to use debt more strategically for future growth. We believe this approach sets us apart and creates a clear path to long-term value creation.”
Revenue
Revenue continued to be impacted by Bitcoin’s halving and Core Scientific’s operational shift from Bitcoin to HPC. While the ramp in AI/HPC revenue approaches, crypto self-mining remained the primary driver of the YoY decline in Q1 as it contributed nearly 85% of revenue. Q1 revenue declined (55.6%) YoY, missing estimates by nearly 7%.
Crypto self-mining revenue declined (55.2%) YoY to $67.2 million, impacted by a (75%) decline in Bitcoin mined and shift to HPC
Crypto hosted mining revenue declined (87%) YoY to $3.8 million, again impacted by the HPC shift.
Colocation (HPC) revenue was approximately flat QoQ at $8.6 million.
Here is what was stated on the call about the revenue decline: “The sequential revenue decline was primarily driven by mining disconnections and relocations as we continue converting sites to support high-density colocation. More specifically, we earned 719 Bitcoin in the first quarter compared to 974 in the fourth quarter.”
Quickly ramping capacity for CoreWeave in Q2 through year-end is expected to drive significant growth in Colocation revenue. Management says they expect the 250MW will allow them to enter 2026 with annualized colocation revenue of ~$360 million ($90 million per quarter), up more than 10x from its $8.6 million ($34.4 million annualized) in Q1.
This ramp is expected to drive a significant rebound in Core Scientific’s revenue growth, with analysts currently expecting the company to exit 2025 at ~$160 million in revenue, approximately double Q1’s level. This would correspond to growth of 68.3% YoY, a more than 120 point acceleration as the year progresses.
However, it’s important to note that estimates have come down sharply over the past three months:
Q2 revenue was estimated to decline just (10%) to $126.6 million at the end of February, but is now seen declining (34%) to $93.1 million.
Q3 revenue was estimated to rise 84.4% to $175.8 million, but is now expected to rise 27.5% to $121.2 million.
Q4 revenue was estimated to rise 110.5% to almost $200 million, but is now expected to rise 68.3% to $159.8 million.
Despite these changes in estimates, management reiterated they are on track to reach their capacity goals: “Looking ahead, I'm even more confident than I was just two months ago in our ability to hit our milestones, 250 megawatts by the end of this year, inclusive of Austin and 590 megawatts by early 2027.”
The company pointed toward growth potential as well, stating there are additional opportunities to add the following capacity: “On the organic side, we remain confident in our ability to add approximately 300 megawatts of billable capacity across our existing sites by the end of 2027. Looking ahead, we also continue to believe there are significant opportunities to grow into new geographies, and we're targeting an additional 400 megawatts of billable capacity through new site development over the next three years.”
Margins
Gross margin expanded sequentially, but operating margin widened to more than (50%) as rising costs bit into weaker revenue. While Colocation promises to bring substantial revenue streams and strong tailwinds to growth through year-end, margins at the moment are minimal, even with power costs being passed through to CoreWeave.
Gross margin was 10.3% in Q1, expanding from 5% last quarter but well below the 43.3% margin from the year-ago quarter due to the Bitcoin halving and operational shift.
Operating margin was (53.6%), widening from (41.9%) last quarter and a stark contrast to the 30.3% margin from a year ago. The significant YoY difference was primarily caused by a more than (89%) YoY decline in gross profit and a 137% increase in SG&A expenses.
By segment:
Crypto self-mining gross profit margin was 9%, down from 49% a year ago, impacted by the shift to HPC and a (75%) decline in BTC mined, partially offset by a 74% increase in the average price of BTC and a 33% decrease in power costs.
Crypto hosting gross profit margin was 46%, up from 32% a year ago, primarily due to lower power costs.
Colocation gross profit margin was 5%.
EPS
Core Scientific benefited significantly from a $621.5 million mark-to-market adjustment on its warrants, and as a result, it reported $580.7 million in net income. This represented $1.25 in EPS, which is not comparable to the ($0.12) estimate due to the warrant impact. Stripping out this impact, net income would be ($40.8) million.
Core Scientific is currently expected to record losses through the rest of the year, shrinking each quarter from ($0.11) in Q2 to ($0.03) by Q4.
Cash and Balance Sheet
Core Scientific burned through a substantial chunk of cash in the quarter as it continues on its operational shift.
Operating cash flow was ($40.6) million for a (51.1%) margin.
Free cash flow was ($129.0) million for a (162.3%) margin, as Core Scientific’s capex rose 177% YoY to $88.4 million.
Cash and equivalents totaled $697.9 million, with Core Scientific burning through $138 million in cash in the quarter.
Debt totaled $1.12 billion. Management also shared long-term debt leverage targets on the call — per the CFO: “And over time, we believe our net debt to adjusted EBITDA leverage can and should trend toward approximately 4 times, consistent with peers in the space.”
Adjusted EBITDA was ($6.0) million for an (8%) margin, down from $88 million or a 49.1% margin in the year ago quarter.
Core Scientific also recognized $42 million in prepaid colocation license fees as deferred revenue in the quarter.
Earnings Call Q&A:
No New Customers Yet; but Enterprise Customers on the Horizon
The market will reward Core Scientific if the company can add more customers. In our previous write-up we stated the company’s goal is to have CoreWeave customer concentration to be 50% or less by 2028. This remains the goal with no updates on customer concentration improving:
“Now, to be clear, we haven't signed a new customer yet, but our sales pipeline is expanding. It includes a healthy mix of hyperscale and large enterprise customers, and we are actively negotiating with multiple customers today […] We currently have several non-hyperscale deals in our pipeline, ranging from 50 megawatt to 100 megawatt customers. These are substantial deployments, and they come with a return profile that's attractive […] I'm more confident than ever in our ability to build a customer base that is more diverse, more balanced, and more strategically aligned with our long-term vision. Our target remains the same, to have Core represent less than 50% of our billable capacity by the end of 2028.”
The advantages of enterprise customers were discussed further in the call, with Core Scientific likely needing to first prove it’s been able to stand up Blackwell systems before demand increases from a broader set of customers.
“Adam Sullivan
Yeah, it's a great question. Thanks Darren. Large enterprises, the timeline to get into final contract details are definitely faster than on the hyperscale side. There's a natural inclination to move towards hyperscale from the broader perspective of their creditworthiness. But the large enterprises that we're looking at today are I think $75 billion market cap plus and represent a creditworthiness that we find very acceptable in the return profile of these are higher than hyperscale deals as well. So, as we evaluate potential multitenant build-outs going forward, large enterprises could represent significant anchor tenants for those new sites to allow us to begin development in new geographies and start building out new sites”
The CEO reiterated again they are getting close to signing more enterprise customers:
“And so, we're currently evaluating a number of different deal structures that we're in discussions with clients. And I would say we're excited about the return profiles the large enterprises represent because they do have the capability, based on their scale and their size, that they're demanding today to represent an acre tenant for us to open up a new site location. And so, we will continue to evaluate deals going forward, and we're excited about the continuously growing pipeline in large enterprise channel.”
In time, however, Core Scientific believes it will prove itself to other hyperscalers, stating: “I think our delivery and execution is only going to breed confidence kind of as this year goes on. And again, we're probably one of the only data center providers right now that's going to launch 250 megawatts in a single calendar year of what essentially is going to be more than 100,000 of GB200.”
Tariffs
It wouldn’t be a Q1 earnings report if I did not address tariff commentary from the call. Core Scientific stated they have procured components to deliver on time this year and into the first part of 2026, although there seemed to be some hesitation when looking further out. Although management put a positive spin on it, there’s a scenario that should be monitored which is that data center builds become more expensive as we approach 2026, and thus, budgets could tighten.
Paul Golding:
Thanks so much. Just quickly a housekeeping question I wanted to ask regarding digital asset mining. I think previously you'd mentioned that the digital asset mining hosting the capacity was you were going to exit that by year end. Just wanted to confirm that that was still the plan since we saw some revenue come through this quarter for that.
And then, my main question is around long lead time items. Just referencing your commentary around 2025 goals, the equipment being acquired to meet those goals. Wanted to ask about ’26 hearing about long lead times for step down infrastructure and other components, particularly around electrical equipment, and so just wanted to see how that was progressing as well? Thank you.
Matt Brown:
Yeah. I think the way to look at this is 2025, we've already secured all that equipment and most of it is already sitting in the ground either in warehouses adjacent to the projects that are ongoing or at the project site themselves. So, 2025 is locked in from an equipment standpoint.
2026, we have a good read-through on both the availability and cost for all that equipment. A lot of that through the first half of ’26 has already been procured, and a few portions of that will start taking delivery towards the second half of this year for projects that are going to extend that are going to start launching in 2026.
With that said, I think this part of this touches on tariffs and equipment availability. With our strong relationships with our suppliers that I would say we have really, really good insights in the availability and that we're not really too concerned right now about not being able to take receipt of equipment and meeting our dates or any buy dates to meet our delivery goals.”
Conclusion:
Core Scientific is the highest risk stock in our portfolio as it takes a leap of faith that the partnership with CoreWeave is setting a standard in terms of standing up and powering up data centers very quickly. This quarter the company is starting to transition toward AI revenue rather than bitcoin revenue (i.e., primarily Bitcoin losses). According to analyst estimates, CORZ looks to be returning to revenue growth by Q3 which gives you a good idea as to when AI should be leading the market again as CoreWeave is a strong proxy for when Nvidia will resume its product cadence.
We feel confident taking on the challenge of owning CORZ although it will require an active stance with risk management controls in place.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Core Scientific is a major Bitcoin miner leading the transition to high-performance compute (HPC) data centers with 1.3 GW of contracted powered infrastructure.
The Company signed 12-year hosting deals with AI Hyperscaler CoreWeave to provide 590 MW of HPC infrastructure valued at up to $10.2 billion.
CoreWeave will front the $750+ million in capex funds to modify Core Scientific’s data centers as an anchor client.
Core Scientific’s HPC hosting revenues could surge 21X per quarter when the full 590 MW of critical load go online in 2027.
ROTH MKM expects Core Scientific to reach a $1.58 billion run rate by 2027.
The I/O Fund will be holding a very tight stop on any position we initiate, and the stock will be for Advanced Market Signals only, indicating it qualifies for more advanced investors who are comfortable trading daily/weekly.
This analysis originated as a Discovery idea, yet Knox sees a setup he may pursue in the coming weeks. Join his webinar this Thursday at 4:30 pm EST to learn more.
Core Scientific (NASDAQ: CORZ) is a digital infrastructure company that operates bitcoin mining and hosting services, and high-performance compute (HPC) hosting services through its nine purpose-built data centers. As one of the largest Bitcoin miners in North America, operating 171,000 mining rigs (164,000 owned), the Company is positioning itself for significant growth in the AI space.
Its strategic shift to high-performance computing (HPC) hosting is particularly compelling, allowing it to mitigate Bitcoin’s volatility while capitalizing on the surging demand for AI data centers. By securing high-margin HPC hosting contracts, the company is poised to tap into one of the most lucrative and rapidly growing markets in technology. While other Bitcoin miners are starting to catch on, attempting to transition to AI data centers, Core Scientific has a clear first mover advantage reinforced by lucrative multi-billion dollar 12-year contracts with upside revenue potential of $10.2 billion with AI hyperscaler CoreWeave with a trajectory aimed at generating 21X HPC hosting revenue growth in 2027.
Core Scientific’s Value Proposition for HPC Hosting Customers
Core Scientific provides many attractive value propositions to hyperscalers:
Specialized Power Infrastructure: HPC customers require more power than conventional data centers can offer. AI and HPC workloads require 6 to 10 times more electricity to operate. Traditional data centers are accustomed to single racks consuming 10 to 15 kW of power. Current AI racks push 80 KW as they will soon draw 120 kW to 150 kW in the next generations, with 200 kW within several years. Core Scientific has the existing infrastructure with nearly 900 MW of capacity for HPC hosting in addition to the 400 MW for Bitcoin mining capacity.
Scalable HPC Infrastructure: They are actively transitioning their facilities to cater specifically to AI workloads with infrastructure optimized for machine learning and deep learning applications. Its Denton, Texas, facility is undergoing a $6.1 billion expansion, boosting its MW capacity by 97 MW to 394 MW with 47 more acres to 78 acres to host one of North America's largest GPU supercomputers for AI computing. It's being converted entirely for HPC hosting.
Location: Core Scientific operates 9 Application Specific Data Centers strategically located near major internet hubs in Georgia, Kentucky, North Dakota, North Carolina, Oklahoma, Alabama and three in Texas. Its new leased (with an option to buy) site in Alabama offers 11 MW of critical IT load and is scalable up to 66 MW of critical IT load, which Core Scientific is in discussions with potential new clients to contract for HPC hosting. They are developing a state-of-the-art 100 MW data center in Muskogee, Oklahoma.
Maintenance and Repair: Offering 24/7 around-the-clock monitoring, support and maintenance, Core Scientific is one of the largest application-specific integrated chips (ASIC) repair centers in North America, servicing their own and customer’s fleet of 171,000 bitcoin mining rigs. Parlaying from ASICs, they plan on using their expertise and manpower to replicate it and expand their offering on the GPU side.
CoreWeave: An Early Believer in the Core Logic’s HPC Transition
CoreWeave is an NVIDIA-backed AI Hyperscaler, providing AI cloud services by offering GPU clusters for HPC and AI workloads. CoreWeave is a specialized cloud provider offering an optimized platform for GPU-intensive tasks. They build and operate their own data centers equipped with a massive scale of over 300,000 Nvidia GPUs. They currently have 28 operational data centers and plan to open 10 new data centers in 2025, leasing a significant portion of their capacity with Core Scientific.
On March 6, 2024, Core Scientific announced an initial long-term deal with anchor customer CoreWeave to provide up to 16 MW of data center infrastructure for their HPC and AI workloads at their tier 3 data center in Austin, Texas. This helps to substantiate the pivot from Bitcoin mining to offering AI/HPC infrastructure, stating a “strategy shift” to AI may be good for a temporary stock price spike, but actually signing up customers is another story.
CoreWeave was already a GPU hosting client from 2019 to 2022, hosting thousands of GPUs. Despite the potential value of the March 6 deal being worth up to $100 million, it didn’t move the needle much for the stock price, which still traded under $4.00, selling off to $2.95 the following week.
CoreWeave Ups the Ante and Fronts the Capex Funds in $3.5 Billion Deal
Core Scientific was successful in delivering 16 MW of capacity more than 30 days ahead of schedule at its Austin, Texas, data center. This prompted more deals. On June 3, 2024, CoreWeave signed several 12-year contract deals securing 200 MW of infrastructure to host CoreWeave’s NVDA GPUs. Additionally, CoreWeave will fully fund (not pay for) the capital investments (capex), estimated around $300 million, required to modify Core Scientific’s “existing infrastructure into cutting-edge application-specific data centers customized for dense HPC." CoreWeave will put up the capital for the modifications and Core Scientific will credit them 50% of their hosting fees until it’s paid back fully.
Regarding CoreWeave paying for the capex, here is what was stated on the call:
“Yes. Thanks, Brett. I mean really, the difference in the CoreWeave deal is 100% funding of the CapEx. They were able to significantly buy down their rates. And I think as we look forward, what we're seeing for 2025 is frankly rather unique. If you're able to deliver capacity in 2025 and 2026 right now — we're definitely seeing those lease rates be much higher than we expected, especially given that many of these folks are willing to cover some portion of the CapEx of the build-out. So we're excited about where lease rates are going, and we believe we'll be able to extract a significant amount of value from the demand that we're currently seeing over the next few years.”
CoreWeave Contracts a Total of 502 MW Generating $8.7 Billion Over 12 Years
Once the 200 MW of HPC is operational Core Scientific estimates they’ll receive around $290 million annually or more than $3.5 billion during the initial 12-years terms of the contracts. CoreWeave exercised its options and signed for an additional 70 MW on June 25, 2024, and $105 million of capex funding, equating to an additional $1.23 billion for Core Scientific during its 12-year term. In August 2024, CoreWeave signed another 112 MW contract beginning in 2026.
In October 2024, CoreWeave exercised the rest of its options and signed another 120 MW hosting contract for 12 years for a total of a full 502 MW of critical IT load with a total revenue potential of $8.7 billion over the 12-year terms of its contracts. The average annual run rate is $725 million. HPC hosting revenues are expected to start flowing in 2025 with 200 MW delivered by the end of 1H 2025, up to 270 MW delivered by the end of 2H 2025, up to 382 MW by the end of 1H 2026 and up to 500 MW by the end of 2H 2026. CoreWeave is expected to fund capex costs of $750 million, which Core Scientific will credit 50% of the hosting fees until fully repaid.
CoreWeave: Providing 250,000+ NVIDIA GPU-powered AI Infrastructure For Lease
As Core Scientific’s largest anchor customer, it’s important to take a look into this client. Core Scientific is a direct benefactor of CoreWeave’s success. What’s good for CoreWeave is also good for Core Scientific.
CoreWeave is an AI hyperscaler that has evolved from a crypto miner that leased space and power (NVIDIA GPUs) from Core Scientific to an AI hyperscaler powerhouse with a roster of high profile clients including Microsoft, Meta Platforms, IBM, Cohere, NVIDIA and OpenAI. CoreWeave is a specialized cloud provider focused on offering scalable AI cloud infrastructure including access to over 250,000 NVIDIA GPUs, low-latency networking and high-bandwidth storage optimized for the massive computational workloads of AI training and inference and ML. The company stands out, as NVIDIA stated, “… CoreWeave has launched NVIDIA GB200 NVL72-based instances, becoming the first cloud service provider to make the NVIDIA Blackwell platform generally available.”
CoreWeave builds infrastructure that can scale at a moment’s notice that can go from zero GPUS to 10,000 GPU working on the same job within a minute.
In 2024, Microsoft accounted for nearly 62% of CoreWeave’s revenue (with Meta accounting for 15% according to H.C. Wainwright), which surged 737% YoY from $229 million to $1.9 billion. Customer concentration concerns were eased a bit with the signing of a $11.9 billion deal with OpenAI, who will also become an investor owning $350 million of stock. NVIDIA holds a 5% minority stake in CoreWeave, which will be going public in 2025.
Core Scientific Gets a Game Changer Deal with CoreWeave
The revenue potential of CoreWeave’s contracts is $8.7 billion over their 12-year terms, equivalent to $725 million annually once fully online. That equates to $181.25 million of quarterly HPC revenue, up from $8.5 million in Q4 or 21X potential, by early 2027. When compared to overall revenue, this is 2X growth on a quarterly basis.
The 21X growth in HPC and 2X growth in overall revenue is before the additional 70 MW $1.2 billion expansion deal announced at its Denton, Texas facility in its Q4 earnings release, resulting in the cumulative revenue potential of over $10 billion from CoreWeave, with 75 to 80% cash gross profit margins according to the Company. The full 590MW contracted to CoreWeave is expected to come online in 2027. This would be up from 250 MW expected in 2025.
CoreWeave Announces $1.2 Billion Expansion at Denton, Texas Facility
On Feb 26, 2025, coinciding with its Q4 2024 earnings release, Core Scientific announced a $1.2 billion 70 MW expansion at the Denton, TX site, for CoreWeave. The 70 MW of additional contracted power at the Denton site increases the full critical IT load to approximately 260 MW. The agreement increases CoreWeave's total contracted HPC infrastructure with Core Scientific to approximately 590 MW across six sites.
Under the terms of our Agreement with CoreWeave with respect to this additional 70MW, Core Scientific is responsible for funding $104 million of the additional required capex ($1.5M per MW), with CoreWeave responsible for the additional capex associated with the expansion. The company also retains the option for two additional five-year renewal terms.
“Looking ahead, we now expect to have delivered approximately 250 megawatts of HPC capacity to CoreWeave by the end of this year, with the full 590 megawatts coming online in early 2027. This represents a shift from our previous timeline and reflects both the size and complexity of the project, particularly the addition of an incremental 70 megawatts of critical IT load.“
Adam Sullivan also added this, “So from what we're seeing on CoreWeave's demand side is significantly stronger than what we saw in 2024. There's a lot of things going on in the market today that we're seeing that's actually driving continued demand and flow into CoreWeave. And so we're excited about continuing to expand with them at Denton. And Denton is going to be one of the largest supercomputers in the United States, and it's going to be a flagship asset for CoreWeave.“
One note of caution: Core Scientific has all the makings of a hypergrowth stock and this includes immense risk. The company is recently out of Chapter 11 Bankruptcy and has to raise cash to fund operations, which means taking on debt. The I/O Fund will be holding a very tight stop on any position we initiate, and the stock would be for Advanced Market Signals only, indicating it qualifies for more advanced investors who are comfortable trading daily/weekly.
Looking Beyond the Q4 2024 Headline Numbers
Core Scientific reported disastrous-looking Q4 2024 earnings results based on headline numbers, with an EPS loss of ($0.60), missing consensus estimates for a loss of ($0.09) by ($0.51). Revenues fell 33.1% YoY to $94.93 million, missing consensus estimates by ($2.14 million). Yet, the stock gapped over 10% following its release.
The reason is that just beneath the surface, Core Scientific is setting up to solve one of the biggest issues the United States and the AI market face: power supply. The company is going through a transition period as it moves into the AI/HPC data center markets supported by AI hyperscaler CoreWeave, who just signed a five-year $11.9 billion deal with OpenAI.
$224.7 Million Mark-to-Market Adjustment Shouldn’t Spook Investors
The initial sting of the reported ($265.5 million) GAAP loss in Q4 2024 may sound like bad news, but $224.7 million of it is a non-cash mark-to-market adjustment on warrants; just accounting noise. The “actual” Q4 net loss was ($31.8 million), not ($265.5 million).
Core Scientific issued warrants, which are considered liabilities under GAAP accounting rules since the Company has to deliver stock at the exercise price. If the stock rises in value, the Company has to post a larger liability, but it doesn’t mean they are taking any actual losses. The Company issued two tranches of warrants at $6.81 x 98.3M shares for Tranche 1 (CORZW) exp. January 23, 2027, and $0.01 x 81.9M shares for Tranche 2 (CORZZ) exp. January 23, 2029, as part of its plan to emerge from Chapter 11 bankruptcy in January 2024.
The Company still receives the funds when the warrants convert as they issue the required shares. There are no real losses. In fact, it’s relatively good news since the higher the stock price rises, the deeper the “paper losses” appear until the warrants are all exercised or expired and taken off the books. However, that presents a dilution issue of an additional 180.2 million additional common shares.
The 116 Million Shares from Warrants Remaining Might Spook Investors
During 2024, Core Scientific received $4.4 million in proceeds from 646,109 shares of Tranche 1 warrants being exercised. On December 24, 2024, 60.9 million Tranche 2 warrants were exercised for $600,000. This leaves 116 million warrant-related shares remaining of potential dilution on the remaining warrants. Core Scientific has 294 million shares outstanding as of February 20, 2025.
As of February 20, 2025, the pro forma diluted share count is 501 million shares. This includes the current 294 million shares outstanding along with 207 million additional unissued shares that include Tranche 1 and Tranche 2 warrants of 116 million remaining, convertible notes of 70 million shares and 21 million shares of restricted stock and reserve shares.
Revenues Sink as Company Converts Bitcoin Data Centers to HPC Data Centers
The company’s Q4 revenue fell by (33.1%) YoY and (0.44%) QoQ to $94.93 million, primarily due to the decline in self-mined Bitcoin to 974, down from 3,042 in the year ago period. The Company has been converting some of its Bitcoin mining data centers to HPC data centers and actively “sunsetting” Bitcoin hosting contracts as it transitions to HPC hosting. The Bitcoin halving event also occurred in April of Q2 2024, thereby causing Bitcoin revenue to shrink on a YoY basis further magnifying the deceleration. Revenue fell short of estimates by (2.2%).
Analyst expect revenue to fall (48.26%) YoY to $92.77 million in Q1 2025, and fall (30.03%) YoY to $98.73 million in Q2 2025.
Full-year 2024 revenues rose 1.6% to $510.7 million.
Analysts expect FY2025 revenue to fall (3.71%) YoY to $491.75 million.
Revenue Segments: Bitcoin Revenues Drop in Preparation for HPC Revenue Acceleration
As Core Scientific transitions from Bitcoin self-mining and hosting to HPC hosting, the revenue segments can be expected to drop in the Bitcoin segments and rise in the HPC hosting segment. The quarters may look predominantly worse until the Core Scientific HPC revenues start to ramp up as they go online. Based on analyst estimates, Q1 2025 may be the final “kitchen sink” quarter before revenues reaccelerate.
Margins Consistently Expand Through 2024
Q4 gross margin was 5%, compared to 27.7% in the same period last year.
Q4 operating margin was (41.9%), compared to 2.8% in the same period last year. However, EPS is showing a rebound on the horizon as higher margin HPC hosting revenues increase.
GAAP EPS Trending Towards Positive After Mark-to-Market Adjustments on Warrants
Q4 GAAP EPS was ($0.60) compared to ($0.11) in the same period last year. The EPS miss was primarily due to the $244.7 million non-cash market-to-market (MTM) adjusted on the warrants.
Analysts expect GAAP Q1 2025 EPS to improve to ($0.10).
Analysts expect GAAP Q2 2025 EPS to improve to ($0.07).
Analysts expect GAAP Q3 2025 EPS to improve to ($0.05).
Analysts expect GAAP Q4 2025 EPS to improve to $0.01 as CoreWeave's data centers come online.
Full year 2024 GAAP EPS was ($4.39) compared to ($0.65) last year.
Analysts expect full year 2025 GAAP EPS to improve to ($0.24).
Analysts expect full year 2026 GAAP EPS to improve to $0.40 as more of CoreWeave’s data centers come online.
Cash Grows as Core Scientific Issues $1.09 Billion in Convertible Senior Notes
Core Scientific closed Q4 with $836.2 million in cash and $1.09 billion in debt. The debt is comprised of two convertible notes. In August 2024, The Company issued $460 million in convertible notes due 2029, which enabled the Company to refinance its debt from a 12% interest rate to 3% while increasing its cash position and removing covenants to allow the Company to accumulate Bitcoin. The conversion price is $11.00 at a rate of 90.9256 shares per $1,000 in principal, which brings a total 41.82 million shares issued upon conversion.
In December 2024, Core Scientific priced an upsized $625 million convertible senior notes offering due 2031. The conversion price is $22.49 at a rate of 44.4587 shares per $1,000 in principal. This brings a total of 71.61 million additional common shares upon full conversion.
The Implications of Not Being Investment Grade
Its worth noting that there are implications of not being investment grade especially when needing to raise cash. Considering Core Scientific emerged from Chapter 11 bankruptcy in January 2024, this status alone shapes their cash-raising strategy. Being non-investment grade tends to mean higher borrowing costs, but Core Scientific was able to cut their interest rate from 12% to 3% by swapping out the debt with convertible notes.
It’s worth noting that Core Scientific’s 3% interest rate is impressive for a company just out of bankruptcy implying the institution(s) are very confident in Core Scientific’s strategy. However, that route also comes with its potential share of dilution (41.82 million new shares) if shares are converted at $11.00 per share. Core Scientific has the option to redeem early if the stock trades 130% above the conversion price for 20-30 trading days ($14.30) after the initial non-call period August 2027.
The additional $625 million convertible also comes with dilution (27.79 million new shares) but at a higher conversion price of $22.49 and no interest rate. However, Core Scientific achieved this funding with 0% interest implying very high confidence that Core Scientific will either redeem the notes at maturity or that the shares will surge above the conversion price enabling them to convert shares for a profit before then. Both convertibles are senior unsecured obligations, therefore in the event of bankruptcy or default, unsecured creditors rank below secured lenders.
Valuation
The Company trades at a forward P/E ratio of 12.27. The trailing twelve month (TTM) P/S ratio is 4.34 and forward P/S is 12.27. The five-year average P/S ratio is 5.08. The P/S ratio peaked at 9.3 in November 2024.
Management highlighted their strategic pivot from Bitcoin mining to HPC hosting. The Company delivered 500MW of capacity through 12-year agreements worth $8.7 billion, expanding its HPC infrastructure to over 1.3GW of contracted power. Its key initiatives include accelerating capacity expansion and targeting significant new site acquisitions, including projects in Auburn, Alabama, and Denton, Texas.
In Q4, the Company secured approval to expand its gross capacity at its site in Denton, Texas, by nearly 100MW, which equates to nearly 70MW of critical IT load. Denton is on track to host one of the largest GPU supercomputers in North America. The Auburn, Alabama, site currently has 11MW of critical IT load, and the Company is actively working with Alabama Power to secure a much larger power agreement. They are deferring significant capital deployment until they finalize negotiations with prospective customers.
CEO Adam Sullivan said this.
“Today, we announced a significant expansion of our relationship with CoreWeave at our Denton facility, which will bring that site to full capacity. This new agreement adds approximately 70 megawatts of critical IT load and represents approximately $1.2 billion in additional contracted revenue over a 12-year term. With this latest expansion, our total contracted value with CoreWeave now exceeds $10 billion, an amount that includes our Austin, Texas agreement, and covers roughly 590 megawatts of critical IT load once fully online. Of that total, just over 570 megawatts reflect the capacity we're converting at existing sites to HPC, where we expect 75% to 80% cash gross profit margins.”
However, Core Scientific will put up the CapEx to receive full HPC rental payments rather than 50% payments, with the other 50% being a CapEx credit for the upfront CapEx spent by CoreWeave. Sullivan said this.
“Under this newest agreement for the additional 70 megawatts, we will fund $1.5 million in capital expenditures per megawatt, whereas in prior agreements, CoreWeave covered those costs. In return, we will benefit from full rental payments during the first two years of the contract because there will be no CapEx credit associated with this new agreement.”
It’s worth noting that analysts may be considering 2027 full delivery as too ambitious considering as evidenced by the lowering of revisions. There are execution risks that may be out of their hands including grid delays and securing power with utilities (IE: working with Alabama Power to secure more power to the Auburn site), funding capex or negative developments with CoreWeave.
Prioritizing Customer Diversification and CoreWeave Timeline to Come Online Fully
Diversifying its customer base is a key priority as it aims to reduce CoreWeave's share of revenues to under 50% of critical IT load by 2028. The Company is in active discussions and remains confident in its ability to diversify its HPC customer base. The Company exited the year with 15MW of critical IT load. New block ASIC chips are expected in 2H 2025, which will refresh some of its Bitcoin mining fleet. Otherwise, there are no plans for any further CapEx spending in 2025 for its Bitcoin mining business.
CEO Adam Sullivan reiterated their top priority of diversifying new customers.
“We are in active discussions with dozens of new customers, including the vast majority of hyperscale providers in several large enterprise companies. Demand remains strong, but we're seeing considerably more due diligence compared to the first half of 2024. This heightened scrutiny reflects the influx of new market entrants who make ambitious capacity promises yet lack the tangible power agreements to back them up, much like the recent situation where a hyperscaler canceled contracts with companies that overstated their available power.”
The Company expects to have nearly 250MW of HPC capacity to CoreWeave delivered by the end of 2025. The full 590MW is coming online in early 2027. Core Scientific believes they can add another 300MW of capacity across existing sites by the end of 2027.
Earnings Call Q&A:
The Goal of Reducing CoreWeave’s Concentration of Revenue under 50%
Core Scientific is actively trying to diversify their concentration of revenue from CoreWeave.
Jeffries analyst John Peterson:
“Okay. And then I appreciate the goal of wanting to bring CoreWeave down to less than 50% of revenue by the end of 2028. I think that would require you to procure a lot more power this year in addition to signing on additional customers. So maybe just talk through the milestones that you need to hit throughout this year to be on track to do that.”
Adam Sullivan:
“We talk about the ability to continue to expand at existing sites. And that's a competitive process because we are getting direction in terms of how much additional power we're going to be able to achieve at some of our existing sites and then some of our new sites as well. Very attractive locations. Our focus today is on building blue-chip assets. And we want to have those blue-chip assets with blue-chip clients. And so that's where our focus is today. And we're going to continue to execute and acquire more sites to bring more capacity online to secure more contracts and achieve our goal of getting them below 50% by 2028.”
At 75% to 80% margins, 590 MW would yield $637.5 to $680 million, with a midpoint of $658.75 million after 2027 (assuming all 590 MW comes online). If CoreWeave is 50% of critical load by 2028, total HPC capacity needs to double to 1,180 MW from producing more power and acquiring more sites. It would require Core Scientific to assume more hyperscalers sign under similar 12-year terms to CoreWeave. Sullivan stated how diversifying its customer base was a top priority, “Starting with diversifying our customer base, this is the top priority for the company this year, and the goal is to sign enough contracts so that CoreWeave represents less than 50% of critical IT load by the end of 2028.” Sullivan mentioned 700 MW was available.
Nick Giles:
“So, appreciate your target that CoreWeave represents less than 50% of critical IT, but that implies that you sign at least the same amount with other customers, but you do have 700 megawatts that you've outlined between existing and new sites by 2027. So, should we assume that the delta would be new customers as well, or could that kind of 130 be split between a new customer and maybe one more tranche with CoreWeave?”
Adam Sullivan:
“Yes. So, we've outlined the 300 and the 400 number that's critical IT load megawatts, so about 700 megawatts. As we look forward if we have 590 of CoreWeave contracts the 700 available to us is really where our focus is going to be on executing new clients. So that's part of our goal to get them below 50%, to have enough capacity available and saleable for us to be able to bring them down to that level.”
How the Deep Seek News Only Made People Want to Move Faster
The Deep Seek news was a head fake as actual demand increased, and it only made people want to move faster.
Adam Sullivan:
“We've seen much more specific requests around locations in terms of developments and where they would like to build. But overall, the Deep Seek news for hitting the public markets rather hard from everything that we've seen on the actual demand side, demand continues to increase, and those conversations continue to progress very well.”
Diversifying the Customer Base Beyond Hyperscalers
While Core Scientific makes headlines when deals are made with name-brand hyperscalers, enterprise customers could also fill in pieces of the void to improve diversification.
Greg Lewis:
“Could you talk a little bit about you mentioned enterprise customers potentially. It's something that seems to be we're hearing more about beyond just the hyperscalers. As maybe you broaden out the customer base beyond just the hyperscalers, which it seems that latency is a big issue for them. Maybe scalability is a big issue for them. As you kind of look at potential enterprise customers, does that open up sites maybe in your portfolio and elsewhere that maybe under hyperscaler footprint wouldn’t work but through enterprise it might?”
Adam Sullivan:
“And so, we're looking at having hyperscale at the very least as anchor, potentially a single tenant. And if they're serving as an anchor, being able to fill out the rest of the capacity with enterprise clients as well. So, the demand, does it open up more sites with enterprise? Absolutely. But we're focused on blue chip assets with blue chip clients, which includes both of those groups.”
Delivery Times and Securing Power Agreements is a Competitive Advantage
Sullivan pointed out that many while demand remains strong, they are seeing considerably more due diligence compared to the first half of 2024 due to the influx of new market entrants that make “ambitious capacity promises” but actually lack the “tangible power agreements to back them up.” Sullivan referenced what may have been the rumored Microsoft cancellation of commitments with CoreWeave due to “delivery issues and missed deadlines.” Microsoft outright denied the cancellations.
Adam Sullivan:
“This heightened scrutiny reflects the influx of new market entrants who make ambitious capacity promises yet lack the tangible power agreements to back them up, much like the recent situation where a hyperscaler canceled contracts with companies that overstated their available power. Our proven track record and secured power agreements set us apart in this environment, and we won't be expanding our footprint unless we have a high degree of confidence in our ability to deliver for additional customers.”
When pressed about the rumor of Microsoft cancelling capacity with CoreWeave, Sullivan responded.
“I can't comment specifically on any relationship between CoreWeave and Microsoft other than what they've spoken about publicly. But, I mean, CoreWeave's continuing to expand. You're seeing it not only with Core Scientific, but really across the globe and internationally. So, from what we're seeing on CoreWeave's demand side is significantly stronger than what we saw in 2024. There's a lot of things going on in the market today that we're seeing that's actually driving continued demand and flow into CoreWeave. And so, we're excited about continuing to expand with them at Denton.”
Is Core Scientific in Discussions with Other Hyperscalers?
Needham analyst John Todaro inquired about discussions with other hyperscalers and CoreWeave. Sullivan noted they are in talks with a majority of hyperscalers in conversations with large enterprises. The customer conversations are continuing to evolve throughout the early part of 2025. Sullivan was asked if he saw any demand changes across inference and training workloads on the back of Deep Seek headlines.
Adam Sullivan:
“Denton was a site that we were really slating for CoreWeave. We did have conversations with some other hyperscalers and other clients on those megawatts. As we talked about the 300 megawatts potential at other existing sites, we're in conversations today with other potential customers around that. There's really no guarantee that anything like that would go to CoreWeave, because what we do want to do now is really focus on continuing to diversify our client base, and our existing sites are great campuses for us to do that.”
Elaboration on the Delays
Sullivan mentioned there were some delays from changing some of the designs to fit for the equipment further impacted by the constrained supply chains going out into 2026.
Adam Sullivan:
“And one of the things that we wanted to ensure that we achieved was that we had the right equipment on the right schedules for the site plans that we had. And so, that required us to change some of the designs to fit for the equipment that was available to deliver on the timelines that we set forward. And so, there was just some incremental delays there. But overall, we have high confidence in where the delivery schedules that we've put forward today. And we believe we're going to be able to hit those timelines.”
Management now expects critical IT load to be 250 MW, including the 16.5 MW, down from 270 MW plus 16.5 MW.
Brett Knoblauch:
“Thanks, guys. Really appreciate it. Maybe just quickly on the delays, if you will, or the pushback in timing. Just want to make sure I heard you right. You're now expecting critical IT load this year to be 250 megawatts. Does that include the 16.5? And before, you guys were expecting, I think, 270 plus the 16.5.”
Adam Sullivan:
“Yes, thanks, Brett. Yes, that's correct. That's really a push out of just one 40-megawatt building out into early 2026. And you're absolutely right. That number does include the 16.5 megawatts.”
Core Scientific Implements a Utility First Process For Evaluating Expansion Sites
For data center site selection, there is a shift away from large remote training sites towards locations that are closer to major metropolitan areas. This has been driven by demand and the need for proximity as the Company expands into new markets, which include the East Coast. However, prioritization is based on reliable utility partnerships.
Rosemarie Sison:
“Just to follow up on that comment that you made, Adam, about proximity to major metro areas. Would that mean that you're potentially looking at expanding out of the markets that you're in right now possibly into the East Coast or the West Coast as those opportunities present themselves?”
Adam Sullivan:
“Yes, absolutely. Thank you for the question, Rosemarie. I mean, we are building one of the larger data centers on the East Coast right now. And so, we have a lot of confidence in our ability to continue to expand in new markets. This is something where we're going to be one of the larger providers in the Dallas market. We believe something similar in the Atlanta market as well. So, we're definitely looking at continuing to enter into new cities. But albeit that looks a little bit different because we might have less familiarity with the utilities in that location. A point on that is we currently operate with seven utilities. We're continuing to expand our relationships across that base. And so, we're taking a very diligent process, a utility-first process, when we're evaluating entering new locations to ensure that we have a strong partnership and relationship with that utility so that we know that we have that firm power available when we go take them to a client.”
Conclusion: Solid Gameplan, Execution is the Key
Other Bitcoin mining companies are adopting Core Scientific's pivot to HPC hosting. However, Core Scientific's game-changing contracts amounting to over $10 billion in revenues over 12-year terms with CoreWeave give them a first-to-market advantage fortified by $10.2 billion in revenue potential from an AI disruptor.
CoreWeave, backed by NVIDIA as an investor and customer, is likely the leading hyperscaler in the market, positioning itself as a first mover in the AI data center space.
Hyperscalers will likely follow in CoreWeave's footsteps. This dynamic reinforces the notion that Core Scientific's strategic pivot to HPC hosting could be bolstered by CoreWeave's leadership in the hyperscaler space, further underscoring that what’s good for CoreWeave is also good for Core Scientific.
CoreWeave was initially interested in acquiring Core Scientific for $1.02 billion or $5.75 per share in June 2024, but was rejected and they decided to back them as they expanded their data center footprint. The downside to this relationship is the very limited customer concentration, as CoreWeave is their largest HPC hosting client. Core Scientific’s near-term future lies with CoreWeave. CoreWeave is expected to generate $10 billion from Microsoft as a client by the end of the decade.
As a potential lottery ticket element for investors, CoreWeave could revisit another acquisition attempt for Core Scientific after its IPO, where it would have additional cash and stock to use as currency. The initial acquisition attempt in June 2024 was for $1.02 billion in cash or $5.75 per share, which Core Scientific rejected stating that the offer “significantly undervalues the Company.” With an estimated $35 billion valuation, CoreWeave could make a much more attractive acquisition offer for less than it would be paying Core Scientific over its 12-year term leases.
Core Scientific has a solid game plan to accelerate its quarterly HPC hosting revenue by at least 21X in two years. As with any great game plan, the flaw always lies in the execution. Analyst estimates forecast one more kitchen sink quarter to go before revenues turn back up as HPC hosting revenues start to ramp up. The potential for more than doubling the outstanding shares to 501 million shares upon full conversion and vesting of restricted stock is concern down the road, but for now the game plan looks solid; the execution is the key.
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Jea Yu, Equity Analyst at the I/O Fund, contributed to this article.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Coinbase’s Q4 report was a blowout, with revenue beating estimates by more than 23% as transaction revenue and trading volumes both rose high triple-digits on a QoQ and YoY basis in the quarter. EPS of $4.68 came in more than 100% above estimates, with Coinbase benefiting partially from gains on crypto asset holdings and higher prices, while adjusted EBITDA and operating income generation were strong.
Management discussed share gains as a growth driver, as trading volume growth significantly outpaced spot market growth on a sequential basis, by as much as 50 points for consumer trading volumes. Transaction revenue growing at a higher rate than trading volumes for both consumer and institutional segments highlighted improvements in monetization, fueled by diversification in revenue streams to stablecoins, financing and subscriptions, and more.
Revenue
Coinbase reported a rather large revenue beat in Q4, following in Robinhood’s footsteps with strong growth in consumer transaction revenues in the quarter. Revenue increased 138.2% YoY and 88.5% QoQ to $2.27 billion, well ahead of estimates for $1.84 billion. The revenue outperformance was driven by significant triple-digit sequential growth in trading volumes, fueled by elevated crypto trading activity and a 27% sequential uptick in volatility as Bitcoin chopped around the $100K mark.
Management also said that they had “reached an all-time high for both U.S. spot and global derivatives market share in Q4,” with contributions from derivatives trading appearing in transaction revenue.
Q4’s strength was a stark contrast to Q3 for the spot market, which rebounded substantially in the quarter. In Q3, the US spot market had declined (18%) QoQ, but in Q4, the US spot market increased 126% QoQ.
For 2024, Coinbase reported $6.56 billion in revenue, up 111.2% YoY, driven by a strong Q1 and Q4. This was fueled by 148% YoY growth in trading volume to $1.2 trillion, with positive macro factors in the approval of Bitcoin ETFs in Q1 and the election of a pro-crypto administration in Q4.
Looking ahead, growth is expected to be in the mid-thirty percent rage for 1H, a substantial revenue from 1.5% and 16.3% estimated prior to the report. Trading volumes are already up significantly on a YoY basis YTD (discussed further below in Q1 Outlook). As a reminder to what we’ve stated in our deep dive from September, it’s nearly impossible to predict quarterly revenue this far in advance as asset volatility and trading volumes can be unpredictable. Recall from our post-Q3 write-up that Q4’s original grow estimate was 100 points lower at 38.9% YoY.
Key Metrics
Trading Volume
Trading volume grew significantly in the quarter, with both consumer and institutional trading volume outpacing spot market growth of 126% QoQ. Q4’s trading volume rose 137% QoQ and 185% YoY to $439 billion, the highest growth rate of the year and accelerating from 143% YoY in Q3. Interestingly, Bitcoin’s share of trading volume declined from 37% in Q3 to 27% in Q4, with other assets gaining 15 points share to 48%.
For 2024, trading volume rose 148% YoY to $1.16 trillion, still well below 2021’s peak of $1.67 trillion.
Consumer trading volume surged 224% YoY and 176% QoQ to $94 billion, outpacing spot market growth by 50 points. What’s notable is that consumer trading volumes are still well below 2021’s peaks despite Bitcoin surpassing $100,000 – consumer trading volume is under half of what it was in Q4 2021.
Institutional trading volume grew 176% YoY and 128% QoQ to $345 billion, rebounding from a string of sequential declines after Q1 this year. Institutional volumes nearly surpassed its prior record of $371 billion, coming in just 7% below that mark.
Transaction Revenue
This strong trading volume growth translated into strong transaction revenue growth; Q4’s transaction revenue 194% YoY and 172% QoQ to $1.56 billion. Despite accounting for a fraction of volume, consumer transaction revenue is the primary revenue driver, growing of 187% YoY and 179% QoQ to $1.35 billion. Institutional transaction revenue surged 285% YoY and 156% QoQ to $141.3 million – Coinbase provided a few factors that fueled this growth, discussed below.
For 2024, transaction revenue increased more than 162% YoY to $3.99 billion. Consumer transaction revenue rose 157% YoY to $3.43 billion, while institutional transaction revenue increased 283% YoY to $346 billion. Base and other transaction revenue rose 121% YoY to $210 million – Coinbase provided some strong stats for Base, with platform assets rising 89% YoY to $1.4 billion for 2024 and $25 billion in stablecoin transaction volume in Q4.
Consumer transaction revenue was 38% below Q4 2021’s peak above $2 billion, faring better than volume at 47% below peak. Consumer revenue also benefitted from a notably strong uptick in monthly transacting users (MTUs), which rose 24% QoQ to 9.7 million (still below Q4 21’s peak at 11.2 million) as Coinbase worked to improve trading experiences on the platform and added 13 new assets including “popular memecoins like PEPE and WIF” in Q4.
Interestingly, Coinbase noted that “nearly half of trading customers in Q4 were either new to Coinbase or resurrected from prior cycles.” While not a true driver of revenue, it’s a positive sign to see re-engagement of old customers and substantial new customer additions that can be monetized.
Despite being below peak volume, institutional transaction revenue reached a new peak at $141.3 million. This was nearly 56% higher than in Q4 when trading volume peaked, as Coinbase is benefiting from Prime and new products like derivates.
Management noted that they are seeing “significant momentum” in the institutional business, including “strong adoption of our Prime suite across custody, prime trading, financing, and staking, with top clients engaging with most of these products in 2024,” adding that “Prime Financing saw all-time high loan balances in Q4 [with] elevated client trading activity among customers who use financing.”
A quick note on Base (which we covered in our deep dive here): Coinbase saw “higher revenue per transaction due to increased network demand and higher ETH prices in Q4,” along with sequential growth in transactions. Cost per transaction remained below the $0.01 target, and Coinbase noted a goal to optimize this further in 2025.
Subscription and Services Revenue
Subscription and Services revenue was $641.1 million in Q4, more than 10.5% higher than the upper end of the $505 to $580 million guide provided last quarter. This reflected growth of 15% QoQ and nearly 71% YoY.
For 2024, Subscription and Services revenue grew 64% YoY to $2.31 billion, and notably “was ~4.5x higher compared to levels during the 2021 bull market.” The majority of 2024’s growth was driven by blockchain rewards with revenue more than doubling, stablecoins, and Coinbase One subscriptions.
For Q1, Coinbase guided for Subscription and Services revenue to be between $685 million to $765 million, for approximately 42% YoY growth and 13% QoQ at midpoint. This would be a nearly 30 point deceleration, though for reference, Q4 was originally guided to see 45% YoY growth.
Coinbase said the sequential growth in Q1 would be driven primarily by stablecoin revenue as USDC assets and market cap reached all-time highs in February, “continued growth in our Coinbase One subscriber base, and the higher average crypto asset prices so far in Q1.”
Within subscription and services revenue:
Stablecoin revenue rose nearly 32% YoY but declined approximately (9%) QoQ to $225.9 million in Q4, driven by USDC growth, with international exchange customer balances more than doubling QoQ (settled in USDC). For 2024, stablecoin revenue rose 31% YoY to $910 million. Coinbase noted that it facilitated more than $12 billion in on-chain payments in USDC, up 225% YoY. The segment has shown impressive growth, reaching nearly $1 billion in revenue in just two years.
Blockchain rewards revenue grew 126% YoY and 39% QoQ to $214.9 million in Q4, driven by “higher crypto asset prices, increases in average protocol reward rates (notably SOL), and continued native unit inflows.” For 2024, blockchain rewards revenue increased 113% YoY to $706 million.
Interest and finance fee income rose 34% YoY and 3% QoQ to $64.7 million in Q4, driven by Prime Financing, which saw all-time highs for loan balances after the election. For 2024, interest and finance fee income grew more than 42% YoY to $266 million.
Custodial fee revenue rose nearly 119% YoY and 36% QoQ to $43.1 million in Q4, fueled by higher crypto prices and growth in native units under custody. Coinbase noted that “BTC inflows were the largest driver of native unit growth, driven by our role as primary custodian for the vast majority of ETFs.” For 2024, custodial fee revenue rose 103% YoY to $142 million.
Other subscription and service revenue increased 46% YoY and 56% QoQ to $91.4 million, driven primarily by Coinbase One, with subscriber growth each quarter, accelerating in Q4. One subscribers surpassed 600,000 in Q4, marking 50% growth from Q1. For 2024, other subscription and service revenue rose nearly 125% YoY to $283 million.
Margins
Operating margin showed strong growth on both a sequential and YoY basis, up more than 31 points from last quarter and 33 points from last Q4 to 45.5%. Operating margin nearly matched Q1’s level at 46.4%.
Net margin was 56.8% in Q4 as Coinbase reported $1.29 billion in net income, impacted by “$476 million in pre-tax gains on our crypto asset investment portfolio, the vast majority of which were unrealized.” Pre-tax gains were $357 million when reflecting tax impacts. This was a significant QoQ increase from a 6.3% net margin in Q3, and nearly double Q4 2023’s net margin of 28.9%.
Stock-based compensation was $222 million, or 9.8% of revenue, declining (11%) QoQ. For Q1, Coinbase guided for SBC to be approximately $206 million.
EPS and Adjusted EBITDA
Coinbase places an emphasis on adjusted EBITDA due to crypto asset holdings, reporting its highest adjusted EBITDA quarter of the year in Q4 at $1.29 billion versus $1.01 billion in Q1. Adjusted EBITDA margin was 56.8% in Q4, up from 37.2% in Q3 but down from 61.9% in Q1 due to higher revenue.
For 2024, adjusted EBITDA was $3.35 billion in 2024, rising more than 242% YoY. Adjusted EBITDA margin expanded from 31.5% in 2023 to 51.0% in 2024.
Coinbase posted a rather huge EPS beat in Q4, with diluted GAAP EPS of $4.68 coming in at more than double the $2.04 estimate. This also surpassed the $4.40 in GAAP EPS that Coinbase generated in Q1. One primary takeaway here is that strong spot market conditions and elevated volatility are exponentially beneficial to Coinbase’s earnings generation and growth – Q1 and Q4 accounted for nearly 96% of 2024’s EPS generation.
Cash and Balance Sheet
Operating cash flow remained strong in Q4, rising more than 38% QoQ to $964.6 million. This also marked substantial growth from negative operating cash flow of ($5.2 million) in the year ago quarter. OCF margin was 42.5% in Q4. For 2024, operating cash flow rose 169% YoY to $2.56 billion, with OCF margin expanding from 29.7% to 39.0%.
Cash and equivalents totaled $8.54 billion, while debt remained steady at $4.23 billion. Coinbase is continuing to grow its cash reserves at a quick rate – cash is up almost 11% QoQ and 66% YoY, from $5.14 billion in Q4 2023.
This is quite different than Robinhood, where cash reserves have been flat at $5.1 billion since Q2 2024, and down from $5.3 billion a year ago. Cash and equivalents account for approximately 20% of Robinhood’s total assets, versus 38% for Coinbase.
Q1 Outlook
Coinbase provided a snapshot of transaction revenue for Q1 to date, noting that through February 11, transaction revenue was approximately $750 million. Coinbase cautions not to extrapolate this for the quarter as volatility and asset prices could change on a whim and quickly alter the path of revenue generation, but data from The Block supports a strong quarter of growth, with Coinbase gaining some share.
Monthly exchange volume was estimated to decline approximately (21%) MoM to $2.32 trillion in January, with Coinbase’s volume estimated to decline just (17%) MoM to $159 billion. Through February 14, Coinbase is estimated to have seen trading volume of $64.5 billion, with total exchange volume at $943 billion.
As a percentage of monthly exchange volume, Coinbase’s share rose from 6.5% in December to nearly 6.9% in January and 6.8% in February; both this and the relative outperformance on volume support management’s commentary that they are gaining share.
So far, halfway through Q1, Coinbase’s trading volume is at nearly $224 billion, versus Q1 2024’s $256 billion. Volumes so far are keeping pace with Q4, though this could change quickly.
Earnings Call Q&A
Management discussed the longer-term vision for crypto to fully evolve into an asset with significant daily usage across the world. CEO Brian Armstrong explained Coinbase thinks “crypto is much, much more than just an asset class that people want to trade. There's going to be daily use cases for everybody in the world as crypto updates the global financial system,” touching upon some opportunities in payments and tokenizing securities.
Stablecoin Growth, Revenue Diversification and USDC
Coinbase noted that it diversified its revenue streams during Q4, with growth in derivatives, stablecoins, USDC, staking and other products.
Management shared some interesting stats on stablecoins in the Q&A portion of the call, saying that “there was $30 trillion of crypto stablecoin volume last year. That was up 3x year over year.” CEO Brian Armstrong discussed that for stablecoins, Coinbase believes it can fuel more growth “just driving more partnerships with global and local players like Stripe and Yellow Card to do more global adoption. We've been adding a number of additional stable coin trading pairs on our platform. We've been offering rewards to our customers when they hold USDC,” and these efforts have helped drive stablecoin adoption and revenue in 2024.
Management sees stablecoin payments as a large opportunity in the future, saying that “we're moving with haste to integrate crypto payments across our entire suite of products. We think that'll be a big business over time.”
For USDC, management explained that they “have a stretch goal to make USDC the number one dollar stablecoin,” as it “has a network effect behind it” and could be “really defensible long term. So we'll be accelerating the market cap growth of USDC with more partnerships and leaning into new use cases like adding payment support across our product suite.”
International revenue is improving as well, with management explaining that “international revenue share reached 19% in Q4. And this is due to improved payment rails and localization. We've got a repeatable playbook now that we can launch in these new markets and get them to contribution margin positive. And so we're going to keep doing that in more markets.”
Derivatives Growth
Given that management pointed out that global derivatives reached an all-time high in Q4, they fielded questions about take rates long-term:
Q: Devin Ryan, Citizens JPM: A question on international derivatives. Obviously, just gaining kind of massive traction there and another great quarter of growth. Seems like the fees there are quite a bit lower, obviously. And so also appreciate that might make sense as you're taking share at this type of rate. But I'm curious as you think about take rates in derivatives kind of longer term, should we expect that they would kind of hold the line with where they are now? Or could there be an opportunity to actually increase the take rates as you get to kind of a more mature share?
A: Alesia Haas, Coinbase CFO
“So right now we're focused on building liquidity and building trading volume. And we are providing incentives to various market participants and focus on building that depth of liquidity in each of the order books as we put them on the platform. So, yes, I do believe that over time our fees will evolve and become more mature as we gain this to the scale and market position that we seek to have. And that right now we are not focused on monetizing at the top of the range.
That said, we're going to monetize this competitive with the market. And this is a lower priced product than spot trading. And so you can see us be in a competitive market position here, but not at the current levels that we are today.”
Coinbase is hinting at a path to higher fees, but remaining at a lower take rate than spot trading, requiring more volume to generate the same amount of revenue.
Tokenizing Securities
Management also discussed the tokenization of securities, where they see the potential for a wide range of real-world assets to be brought on-chain with real-time clearing, settlement, and ability to trade 24/7 across the globe.
Q: John Todaro, Needham:
“I have a broader question about the overall vision for Coinbase to maybe become something a lot bigger than a crypto brokerage. The two areas I see are stablecoins and the tokenized real-world assets, which you've discussed some, you could see a world where a lot of that transfer activity ultimately happens on Base. So one, just do you agree with that vision? And then two, is there anything more specifically you guys can do to push both of those segments?”
A: Brian Armstrong, Coinbase CEO:
“Well, that is definitely the plan. … And tokenizing real-world assets or traditional securities. I mean eventually, real estate, the debt markets like private credit, everything should come on chain. It's really just a more efficient way of transferring value and it can do real-time settlement and eliminate various risks that are out there in the ecosystem. So I mean, there's lots that we can do on this front.”
Crypto and Global GDP
Coinbase also shared a long-term vision for the crypto industry, predicting that “up to 10% of global GDP could be running on crypto rails by the end of this decade.” Management noted that “only about half of 1% of global GDP is [currently] running on crypto rails, but we think that, that could expand dramatically by the end of the decade.”
Based on global GDP of ~$105 trillion in 2023, that correlates with about $500 billion of GDP running on crypto. By 2030, global GDP is estimated to rise to $140 trillion, per the IMF, suggesting that crypto’s influence could rise to $10 trillion to $14 trillion should this prediction be realized – that’s more than 20x growth from today for the industry.
Conclusion
Coinbase posted a large beat in Q4 as elevated trading activity and higher volatility drove triple-digit transaction revenue and trading volume growth. Management highlighted revenue diversification with stablecoin and USDC contributions rising, with blockchain rewards and international markets two other growth outlets. Q1 is also off to a solid start with trading volumes keeping pace with Q4, with transaction revenue at $750 million halfway through the quarter, setting the stage for a strong entrance to 2025.
I/O Fund Equity Analyst Damien Robbins contributed to this report.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Ethereum is widely accepted as the 2nd most popular crypto in the market behind Bitcoin. It was first to market with smart contracts and has remained the reigning leader of decentralized apps. However, Ethereum experienced heightened competition when Solana hit the market in March 2020 as an alternative layer 1 network.
Since Solana began trading in 2020, it is up about +28,000% compared to Ethereum’s +1500% during the same time, proving to potentially be a so-called “Ethereum Killer.”
In this report, we will explore the competitive landscape between Ethereum and Solana for layer 1 dominance. While Ethereum’s idea was exceptional and original, execution has been clumsy, opening the door for a better and more efficient option, which is what Solana aims to provide.
While the background and fundamentals are always important to understand, the world of crypto is mostly pre-revenue technologies that are still nascent in their adoption, with little news or earnings reports to review. For this reason, the I/O Fund leans heavily into technical analysis to manage these positions. We expect this drop in Solana to end soon, which should lead to one more swing higher.
Crypto is a staple for the I/O Fund’s portfolio, with two crypto positions seeing gains of 1,000% up to 4,000%, and quick-trade momentum positions gaining 80% to 120%, or more. To access more in-depth analysis on I/O Fund’s crypto holdings, and weekly webinars where we discuss the price levels we’re watching, click here.
Layer 1 Competitive Landscape
One of the fundamental axioms within the world of crypto is what’s known as the blockchain trilemma. Crypto technologies aspire to achieve three critical features: decentralization, security and scalability.
This trifecta is often called the “trilemma” as blockchain technologies can typically solve for two of these problems, yet struggle to solve all three. Instead, current blockchain technologies excel at two of the three, and then must experiment to solve the third with sidechains, sharding and other nascent attempts at solving the third requirement.
For example, Bitcoin’s network has prioritized security and decentralization, while sacrificing scalability. The network sends 7 transactions per second and can take up to 10 minutes to confirm a transaction. The upside is the network’s security is bullet-proof with a hash rate of 460 Exahash per second. It’s impossible today for a supercomputer to crack the Proof-of-Work (PoW) encryption.
Ethereum initially utilized a PoW protocol like Bitcoin. Therefore, in the blockchain trilemma, it sought to be decentralized and secure. However, it accomplished these two features at the cost of scalability. The limitations of a truly secure and decentralized network required multiple nodes confirming each transaction. So, in periods like early 2021, when the demand for the Ethereum network far exceeded its ability to handle high activity, the cost of each transaction rose to astronomical prices, making the network unusable for simple transactions. For example, Time Magazine’s TIMEPieces resulted in exorbitant gas fees where 10 NFTs were priced at 1 ETH for $2500 or $2800 yet due to gas fees, one buyer paid as much as $70,000.
Considering that Ethereum is a business that is attempting to disrupt current technologies, not being able to scale is a serious problem. They have attempted to resolve this critical limitation by shifting their confirmation protocol from Proof-of-Work to Proof-of-Stake (PoS). This protocol works by selecting validators in proportion to the quantity of Ethereum holdings being staked. This is done to avoid the computational cost found in the PoW protocol. This has certainly improved the scalability of Ethereum, but at the cost of being decentralized and secure.
To understand these concerns, consider that Ethereum had seen up to 70% of its supply held by whales in 2021, although the latest report is that 43% of ETH supply is held by whales. The concentration is staggering as six of the top crypto wallets have 98% of their wallets allocated to the Ethereum blockchain, according to TechCrunch.
When looking more closely at Proof of Stake (PoS) validators for Ethereum, Lido is the largest Ethereum validator at 33% stake and Coinbase is at 15%. To help illustrate how unusual this concentration is, consider that the Nakamoto Coefficient for Ethereum is 2, which means it takes only two nodes to control the blockchain. Truly, it’s beyond belief the coefficient is this low for the world’s top blockchain Layer 1. Bitcoin’s is estimated to be as high as 9601. The highest Coefficient beyond Bitcoin is 236 for a network called Humanode, and its goal is to increase the coefficient over time. The last time Solana’s was reported in 2023, it stood at a coefficient of 31.
Also consider that PoS requires 32 ETH, or about $96,000 per node, whereas Proof of Work requires a mining setup of less than $10,000. This means Ethereum is far less democratized, leading to some centralization by the very fact Lido has such a large pool of validators at 33%. There was also a report in May of 2024 that one whale staked about $500 million to the network.
When you add the fact there are thousands of nodes globally, a Proof of Work system is truly decentralized whereas a Proof of Stake (PoS) system could still concentrate itself through “whales;” those who own a disproportionate amount of a single token. This results in the wealthiest crypto holders having a higher concentration in what is essentially a lottery system of validators. If a person has a thousand lottery tickets compared to a person with only ten, the person with 1,000 tickets (or nodes in this case) is more likely to be chosen to validate the ledger. This could lead to corruption, and it ultimately does not fit crypto’s ethos that those with a higher concentration of wealth are allowed to be more trusted and have more authority.
The ongoing complaints and limitations of Ethereum, coupled with long, drawn-out attempts to solve these issues, have allowed the opportunity for better layer 1 options, like Solana.
The I/O Fund is also closely analyzing the supply chain to identify overlooked beneficiaries of the AI infrastructure buildout, sharing this information as well as potential buy and sell plans and real time trade alerts with premium members. The I/O Fund recently entered two separate beneficiaries for gains of 23% and 17% since November. Learn more here.herehere.
Solana’s Proof of History Protocol, Upcoming Firedancer Upgrade
Started in 2017 by an ex-Qualcomm engineer, the primary improvement the Solana network offered was that it was based on a new Proof of History (PoH) protocol. This revolutionary protocol offers a high throughput of 65,000 transactions per second on GPUs, although other blockchain networks have a higher time to finality. Solana accomplishes this without second layers or side chains by using the Proof of History (PoH) consensus mechanism. PoH creates a historical record that proves an event occurred at a specific moment in time. Rather than validators agreeing on a time, Solana validators maintain their own clock by encoding the time with a cryptographic hash function (SHA-256). This circumvents the need to wait for confirmation, thereby resulting in a higher throughput.
In short, Solana is a much more efficient layer 1 — it is significantly faster than Ethereum’s updated PoS protocol, and more secure. This is one reason why Solana is meaningfully outperforming Ethereum since it started trading in 2020. While this technology is still very nascent and not adopted on the level that would make it comparable to your standard hyperscalers, it is providing significant alpha when managed properly.
This year, Solana is expecting to undergo a massive network upgrade, expanding to its fourth validator, Firedancer. Developed by Jump Trading, the new validator client has been built to significantly improve Solana’s transaction processing capabilities. Jump says that Firedancer can allow the Solana network to process more than 1,000,000 transactions per second, boosting speeds and substantially boosting network security.
Such a boost in performance will further enhance Solana’s competitive standing in the layer 1 ecosystem, letting it keep pace with Bitcoin and Ethereum, which is also planning an upgrade this year (Prague/Electra), focusing on scalability and security.
Technical Analysis and Crypto
As stated, crypto tends to have little news moving the price swings. They have no earnings reports, and most are pre-revenue. So, one is left to believe that the large price swings are truly random or governed by a different set of rules.
For those that study crypto price charts, it is apparent that the swings are not random and lend themselves to technical analysis. Technical analysis is simply the study of herd sentiment, which manifests in repeatable patterns, time and time again.
This is the technique the I/O Fund has used to manage a large Bitcoin position since 2019. For example, in early 2021, we reduced our Bitcoin position in half around the $50K region.
We then boldly stated that Bitcoin was going to rally from the $16,000 region in December of 2022. We backed this analysis up with 12 buy alerts within our premium service between $27,000 and $62,000.
We have since started taking well deserved gains, as Bitcoin has reached our long-term targets. However, based on the same techniques used to call a top in 2021, and a bottom in 2022, we see a low developing, which should be followed with one more swing higher into the $114,000 – $150,000. This is where we would reduce our Bitcoin holdings significantly. Until then, we see this dip as a buying opportunity for the more nimble investors.
What’s important to understand about herd sentiment is that it moves in 5 waves. The 3rd wave is the moment where everyone realizes at once the true direction of the trend. We see shorts covering at the same time and early adopters want to buy more. This is met with a vertical movement in price that is accompanied with max volume and max momentum. This was clearly the period between September 2023 and March of 2024.
The final 5th wave is where the herd pushes for one more swing high. The early adopter tends to take gains in the 3rd wave, while those who missed out are looking to finally get in, under the belief that the uptrend is just starting. The 5th wave is a move to new highs in price, but on lower volume and lower momentum.
From our estimation, we are in wave 4 of this final 5th wave. As long as this drop holds over $75,000, we expect a final swing into the $114K – $150K region.
Regarding Solana, the I/O Fund started buying in the $99 – $112 region, and closed our position between $210 and $241. This led to a ~117% gain from our initial buys to our closing prices. We used the same techniques to manage this move and see a similar setup going forward.
Like Bitcoin, Solana is clearly in a 5th wave uptrend that is incomplete. Note the vertical price movement from late 2023 – early 2024. This was met with max volume and max momentum. We are now pushing higher with less volume and less momentum in the 5th wave.
If we zoom in, we can see that this next swing higher is worth playing. Like Bitcoin, I see Solana in a 4th wave correction that is targeting between $170 – $135. As long as any further weakness holds over $120, we expect to see the next swing approach the $325 – $390 region.
In conclusion, being first to market with an idea does not guarantee dominance, especially when adoption of the new technology is early. Until Decentralized Apps and Web3 have an app go viral for more mass consumer adoption, it remains quite risky for investors. The adoption rate for blockchain has not hit the hockey stick vertical move that we like to see in developing tech trends, rather has stagnated in the low hundreds of millions (similar to Pinterest size audience; about half of Snap’s audience) rather than the billions that investors like to see.
This fact, coupled with Solana offering a better layer 1 option, means the landscape has not been decided. Until it is, we believe these cryptos warrant investment attention, and must be governed under strict risk management protocols that can be found in technical analysis.
We do believe crypto is sniffing out a bottom over the coming weeks. As long as critical supports hold, we see this as a buying opportunity for our portfolio.
If you own Bitcoin or Solana, are sitting on sizable gains and do not want to lose them, or if you are interested in owning crypto and not sure where to start, we invite you to join our weekly market webinars. Next Thursday, 1/23/25, at 4:30 EST (1:30 PST), we will hold a special webinar with a focus in crypto where we discuss our risk management game plan with several cryptos. Learn more here.here.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
