Just a year ago, Coinbase Global (COIN 2.02%) was trading around $75 per share. Fast-forward to today, and it has seen a major surge, climbing to roughly $210.

For those who joined me in investing in Coinbase over the last two years, you’re already enjoying significant gains. But there’s reason to believe that Coinbase might climb even higher over the next year, as it positions itself to capitalize on both emerging revenue streams and a potential bull market in the cryptocurrency space. Let’s explore why.

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Diversifying revenue streams beyond transaction fees

If you’ve been following my coverage (or really, any analysis of Coinbase), you’ll know that the company has made substantial strides in diversifying its revenue model over the past few years, a major factor behind its impressive stock performance.

Traditionally, Coinbase generated the bulk of its income through transaction fees, a model highly reliant on trading volume and vulnerable to market swings. Recognizing the need for stability, Coinbase began to build additional revenue sources, notably stablecoin revenue, which is now its second-most lucrative segment.

Coinbase’s stablecoin business has thrived over the past two years, benefiting from its partnership with Circle, the issuer of USD Coin. With higher interest rates, Coinbase has leveraged funds from USDC buyers to invest in Treasury bills, which yield better returns during rate hikes.

This strategy paid off, with stablecoin revenue hitting a record $250 million in Q3 2024. However, this stream may take a hit as the Federal Reserve performs a rate-cutting cycle over the next year.

But this is where Coinbase’s diversified revenue model will begin to shine. While a reduction in rates might dampen the income generated from stablecoins, it could simultaneously spark a new crypto bull market.

As rates fall, the cost of borrowing decreases, and liquidity in the economy tends to increase. Historically, a low-interest rate environment encourages risk appetite, which often leads to more capital flowing into riskier assets like cryptocurrencies (as seen in the bull market of 2021, when rates were at nearly 0%).

With the market projecting rate cuts to reach their peak by mid-2025, Coinbase’s other revenue streams (such as transaction fees, blockchain rewards, and custodial services), which correlate closely with cryptocurrency prices and market activity, may begin to see significant growth in the next year.

How high could Coinbase go?

There’s one metric that can help us assess Coinbase’s potential in 2025: exchange volume. A key measure that helps us gauge the stage of the crypto cycle, exchange volume can be viewed as a proxy for investor interest, and it tends to rise and fall with market cycles.

At the peak of the last bull market, Coinbase processed nearly $550 billion of trading volume in Q4 2021. Today, with the crypto market recovering but still far from the highs of the last cycle, Coinbase’s volume sits at around $226 billion. This suggests not only room for growth, but also the potential to exceed previous records if another bull market takes shape, as crypto assets often break past old highs in these cycles.

This potential market swing holds major implications for Coinbase. During the height of the previous bull run, over 90% of Coinbase’s revenue came from transaction fees. In contrast, transaction fees now account for just 47% of its revenue, reflecting Coinbase’s successful expansion into other revenue streams. This means that, as volume rises, Coinbase has more ways to monetize its platform than it did in previous cycles, amplifying its revenue potential.

As the next crypto bull market gains traction, Coinbase is positioned to benefit not only from increased transaction fees, but also from other revenue sources like blockchain rewards, custodial fees, and other subscriptions and services, which are highly correlated to crypto prices.

Although it’s speculative, some rough “back-of-the-napkin” math shows that if exchange volume is approaching or surpassing the $550 billion peak of the last bull market, Coinbase’s diversified revenue streams could produce record revenue and profits. This would not only bring Coinbase back to its all-time highs, but could also set it up to break new records.

So, where might Coinbase be in a year? If a crypto bull market indeed takes off alongside increasing liquidity from lower interest rates, Coinbase could see a substantial boost. With its diversification efforts paying off and exchange volume set to rise, it wouldn’t be surprising to see Coinbase not only retesting its previous highs but potentially setting new ones.