Summary Coinbase Global (COIN) remains a Buy due to growth in stablecoins, L2, and derivatives, despite recent price corrections and cyclical trading revenues. COIN's subscription and services segment, including USDC and Base L2, is reducing revenue cyclicality and supporting high margins, enhancing long-term attractiveness. The YieldMax COIN Option Income Strategy ETF (CONY) underperformed expectations during corrections, prompting a Sell rating, while direct COIN accumulation is favored after deep pullbacks. A tactical wheel strategy—using CONY after rallies and accumulating COIN at lows with hedges—balances risk and upside until sustained growth in stable segments emerges. In July, my approach to Coinbase Global ( COIN ) was bullish due to strong momentum. I had highlighted potential for continued record inflows into crypto ETFs and that (along with an environment of supportive legislations) supporting crypto prices. Bitcoin prices did not see the bull run I had expected, but this is not thesis-breaking yet. In crypto, corrections are often deep and rebounds sharper. In reviewing Coinbase even today, some of the factors supporting my Buy thesis in July still hold - strengthening of derivatives offerings and a USDC-based payments platform (revenue diversification beyond trading). However, I had recommended tactical use of the YieldMax COIN Option Income Strategy ETF ( CONY ) aware of valuation discomfort at the highs. The thought process there was that the option layer should deliver some delta in a correction scenario, plus de-risk capital faster. There are learnings there too, although the thesis turned around almost exactly for the use case it was designed for. Coinbase did correct by ~32% since my analysis and some fundamentals assumed needs a review. Expectations from CONY have also changed looking at the most recent behavior during corrections. The Thesis for Coinbase Reiterating the core Buy thesis for Coinbase, the retail trading fees is very cyclical and depends a lot on crypto price movements. The less cyclical stable base from subscriptions and services consists of USDC interest income, staking rewards, custody fees and blockchain infrastructure. The cyclicality in transaction revenues (heavily retail driven - over 80% of revenues) compared to the subscription and services segment is very visible in the revenue charts below Transaction and Subscription revenues ($m) - COIN (Seeking Alpha) Beyond trading, several emerging segments hold excellent unit economics potential. Stablecoin economics are very well supported with minimal crypto price dependencies. It generates interest income from T-bills (very predictable). Coinbase also earns 50% of USDC revenues. This makes the segment a very high margin segment. Margins potential is great in the custody segment too (SaaS-like business), where its dominant position and institutional interest ensures recurring revenues. Coinbase takes a cut of user staking rewards - a segment that should benefit from the recurring income stream with low operating costs. Base L2's sequencer revenue is extremely high-margin too and has the potential to become a billion dollar business of its own in a few years. Overall, the continued growth of the subscription and services revenues, particularly Base L2 and Stablecoins should help Coinbase reduce cyclicality of the topline and keep healthy margins intact. On the trading side, further strengthening of derivatives could help stabilize revenues as trading activity on derivatives can continue even in bear markets for crypto. How the Evolving Themes Have Done After a trough in Q2, Q3 trading volumes surged by 37% QoQ and this reflected in revenues, up by a similar range QoQ. Q3 bitcoin prices remained mostly stable, supporting the rebound around expectations from regulatory support through legislations like GENIUS and CLARITY. Therefore, it was very encouraging to note a rebound in volume versus Q2, where bitcoin prices actually rallied sharply. Data by YCharts Going ahead, Q4 volumes will be very important to see how Coinbase's transaction volumes do in reaction to bitcoin's sharp corrections so far in the quarter. This brings us to the important correlation of Coinbase's trading revenues with bitcoin prices. I believe, regulatory clarity is supportive and should lead to greater bitcoin adoption over time. Adoption, more than rally in prices, is key to transaction volumes. If Q4 volumes remain strong despite the bitcoin corrections, Coinbase investors will rerate the stock on the improving adoption versus price correlation. One indicator of importance, in my view, is bitcoin volatility. Adoption and lower volatility are a flywheel-like structure where one boosts the other. Low volatility is an offshoot of greater adoption, and greater adoption will emerge when bitcoin volatility starts showing equity or gold-like stability (or at least decrease from the current trends of 30% rally and corrections quite frequently). The last one year trends did show some reduced and stable volatility levels in Q3 (where volumes did exceedingly well). Volatility is inching up again, but over time as long as the highs are lower and the lows fall further, the bitcoin thesis will become stronger, helping Coinbase's thesis. Data by YCharts Another supporting factor for the trading volumes is the traction in derivatives. After the acquisition of Deribit (closed in August 2025), Coinbase processed over $840b in notional derivatives volume during Q3. In Q1, the volumes were closer to $800b, so the trend is already positive and helped by the Deribit acquisition. Deribit contributed about $52m in revenue only, but has been in play for less than half of Q3. Assuming this number crosses $100m in Q4, it should account for almost ~10% of transaction revenues (~$1b). Depending on how fast Coinbase can scale derivatives in retail, the upside from the derivative focus is both stabilizing and accretive. Of course, margins on volumes are not very high, so large volume traction over the $840b in Q3 will be required, which may take time (international expansion are also subject to regulatory hurdles). On the more stable subscription and services side, the outlook of the stablecoins revenue growth also remains strong. Growing trends continued in Q3 with a YoY increase in revenue by ~44%. Its Layer2 network, Base, turned profitable and benefited from more transactions and higher ethereum prices. Coinbase still remains heavily dependent on its trading revenue fluctuations, but the growth prospects in a stable subscription and services segment appear encouraging. Numbers and Valuations The gross margins remain strong and often shrink when trading volume dictates the revenue mix because of lower margin potential over the higher margin and more stable subscription/services business. But looking at the overall mix of factors - growth in overall trading volumes, still strong gross margins of ~80% despite the trading contribution and a growing crypto-price agnostic portfolio - I feel Coinbase's results were reasonably positive. Data by YCharts There is some drag expected in the subscription and services revenue expected in Q4 (with guidance pointing to a midpoint revenue expectation of ~$750m, almost flat compared to Q3). USDC market capitalization and Coinbase One subscriber growth should continue to grow to offset the rate cut impacts. Coinbase's diversified business is still dependent on progress in the stable segments and growth in derivatives. Rate cuts are a drag and rallies in bitcoin could be supportive. However, I view Coinbase from a long-term lens because short term fluctuations are high. From that perspective, I see rate cuts as the only systematic drag on its bull thesis. But there are compensating stories around stablecoins, L2 and less crypto-price dependencies that are equally impactful on its investment attractiveness. The EV to forward EBITDA is now at ~22x, down considerably from the highs of July (over ~30x). There is room for further contraction, looking at the rate cut pressures and historical valuation norms. But given its diversified positioning and rally potential on a crypto price rebound, it is difficult to call a bottom on valuations. So, based on its long-term thesis around L2, stablecoins and lesser dependencies on crypto prices, plus a overall better adoption expectations in the bitcoin space due to regulatory support, I think now is definitely a time to start accumulating Coinbase. Data by YCharts The July Strategy and CONY Corrections in Coinbase are part of the ride. In the past year alone, there have been 2 other such corrections above 30% (first from December 2024 to April 2025 by 50-60%) and another from July 2025 to August 2025, before the current drop starting October 2025). Each time Coinbase has bounced back. For a longer term investor riding a volatile stock, there is no room to be defensive. However, a smarter way to play Coinbase is to accumulate at the lows with put positions to hedge against further fall (and lap up more on such further corrections). At the highs (like in July), switching to a more conservative strategy like the YieldMax COIN Option Income Strategy ETF ( CONY ) makes more sense. I had recommended CONY over Coinbase in July expecting two things to play out. One, CONY's total returns saves around 2-5 percentage points from a deep crash in Coinbase (due to option premium income). Two, it de-risks investors faster at the highs - using CONY's high yields. The first expectation has not at all played out well. CONY has not only been able to generate the alpha in this fall from July, but has actually lagged even Coinbase despite an option income layer. This is also one of the core reasons why I have rerated CONY to a Sell (was anyway a Hold because of its performance flaws). Even COIW is a better bet if investors have a long-term bullish view on Coinbase, although it has tougher drawdowns. Data by YCharts The second expectation of de-risking investors from Coinbase has worked out favorably though. A $100 investment in Coinbase at the highs in July would have become ~$68 today. Investors who took the recommended CONY route in July would have lost $52 in CONY from the share price corrections. But they would have accumulated ~$30 in dividends as CONY continued to pay out aggressively even as Coinbase kept correcting. The net loss for CONY investors is therefore only ~$22, with a cash of ~$30 available (if set aside) for deployment at today's Coinbase lows. This compares favorably to Coinbase investors in July who would have otherwise lost ~$32. Data by YCharts This wheel-like strategy uses CONY very tactically and exactly for its aggressive yields (something that doesn't hold true for investors looking at CONY as an income generating vehicle). My overall strategy will remain overweighting CONY after huge rallies and accumulating Coinbase (with put hedges) after deep corrections. CONY enables upside capture to some extent if Coinbase rallies further from what I feel is a High, and protects downsides slightly better. When Coinbase corrects, accumulating the stock directly (using cash from the CONY payouts) with hedges ensures protection on further falls, while the upside can be fully captured. This may look like a trading strategy, particularly when I am bullish on Coinbase in the long term. It may look set up to fail when Coinbase eventually breaks out at some point. But if we keep looking at valuations rather than just prices and define the high low boundaries between ~20x and ~30x in terms of EV to EBITDA, it should work out well. There is no denying the core long-term growth prospects, but switching away from a wheel-like strategy (while still open to the benefits of an upside rally, though partially) should be triggered by several developments that enables long-term direct positioning in Coinbase. One development I am already tracking is the growth of the subscription/services revenue and any systematic explosion signals in L2 or stablecoins. Another important check will be trading volumes in Q4 and how its reacts to a fall in bitcoin prices - that should indicate whether more investors are looking at crypto as longer term investments and whether derivatives are making trading revenues more cycle-agnostic. I will also look for volatility reduction and further adoption of crypto for investments as well as transactions (wallets/payments). These appear on track as of today, hence a Buy rating for Coinbase at these levels. But to switch away from my CONY-to-COIN-to-CONY strategy, I will look out for further systematic progress.
