Coinbase’s stock fell over 4% in after-hours trading following the release of the company’s third quarter earnings on Thursday, which showed declining revenue and profits compared to the previous quarter.

Crypto enthusiast and Lumida Wealth Management CEO Ram Ahluwalla believes there is still a bull case for Coinbase, but the company needs to make some changes to unlock value and transform into “the next Square.”

Ahluwalla points in a Nov. 3 Twitter thread, out that Coinbase’s top-line revenue declined along with the overall crypto market in Q3. He says the path to GAAP profitability still looks intact, but mainly through cost-cutting measures. For the stock to maintain its high valuation multiple, Coinbase needs to show strong revenue growth.

The most immediate opportunity, according to Ahluwalla, is payments. By combining Coinbase’s wallet and exchange assets with its new Base protocol, the company can become a player in peer-to-peer and merchant crypto payments, competing with the likes of Square and PayPal. However, Coinbase needs to solve the “cold start” problem of getting merchants and individuals to adopt crypto payments.

Ahluwalla believes Coinbase’s planned Bitcoin (BTC) exchange-traded fund (ETF) product will likely capture most of that market, providing custody fee revenue. He also warns that ETFs may cannibalize Coinbase’s higher-margin exchange revenue as retail investors choose the convenience of ETFs over buying crypto directly.

Expanding internationally and launching U.S. derivatives are part of Coinbase’s current growth strategy. But Ahluwalla argues the company should instead prioritize getting a banking charter, building out tokenization capabilities, and capturing the payments opportunity. Having its own bank would allow Coinbase to significantly boost revenue potential.

While the regulatory environment is gradually improving for crypto, Ahluwalla says Coinbase should lobby Congress to reform banking regulations to allow tech companies to own banks, and that this would have wide support across the industry. In the meantime, he believes Coinbase needs to show it can return to strong revenue and user growth to justify its high valuation.

Delivering more real-world utility for altcoins and capturing the payments opportunity seem like the best near-term bets.


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