Brian Armstrong, co-founder of Coinbase Global Inc., believes the market for non-fungible tokens could match or even exceed the company’s cryptocurrency business.
That was a bold remark made by Coinbase’s CEO on a conference call Tuesday after the largest digital-asset exchange in the United States reported third-quarter sales of approximately $1.3 billion. The announcement served to allay fears that income would fall short of expectations, despite a more than fivefold growth from the previous year.
Coinbase intends to launch its own NFT marketplace in the next quarter or two, where users will be able to trade digital art and other items. The startup hopes to provide customers with a one-stop shop where they can make purchases and keep their assets on a platform that provides a social media experience more akin to Instagram than a traditional marketplace like eBay Inc.
Since the marketplace’s first announcement in October, Coinbase has received over 2.5 million emails requesting to join. According to data tracker DappRadar, the largest extant NFT marketplace, OpenSea, had around 236,000 unique user addresses connected with it in the last 30 days. OpenSea is backed by Coinbase.
Users will be able to display their NFTs on the Coinbase website, and others will be able to follow their profile and receive updates. Such capabilities could be critical in spreading the word and drawing consumers at a time when many social networks are also entering the NFT business.
Twitter Inc. recently announced that users will be able to authenticate NFT art in their profiles. Tess Rinearson, who formerly supervised development of software used in projects such as Cosmos, was recently appointed to lead a group focusing on crypto and related technologies at the social site. Meanwhile, Meta Platforms Inc., formerly known as Facebook, is testing a new crypto wallet for international money transfers that may also be used to store NFTs.
“We are very excited about NFTs, this is going to be a very large area for crypto in the future, and it already is today,” Armstrong said Tuesday. “It could be as big or bigger” than the company’s cryptocurrency business.
Assuming the NFT marketplace feature launches this year, “it can be 7% accretive to COIN’s 2023 earnings,” said Owen Lau, an analyst at Oppenheimer & Co.
In the last year, the NFT market as a whole has exploded. According to DappRadar, OpenSea alone saw approximately $2 billion in transaction activity in the last 30 days.
The majority of Coinbase’s revenue comes from retail trading fees. This means that during periods of extreme volatility and dropping prices, when small traders stay away, Coinbase’s earnings may suffer. Coinbase has been striving to diversify its revenue in order to boost predictability by courting institutional traders and offering and looking to offer various services, of which NFT trading is just one. While Coinbase has not announced its costs for the NFT function, they are expected to be similar to those imposed by OpenSea, or roughly 2.5 percent of transaction value, according to John Todaro, an analyst at Needham & Co.
“At a high level, this product suite could materially add to COIN revenues and would be a great diversification add,” Todaro stated.