Just a year ago, Coinbase Global (CURRENCY 2.02%) it was trading around $75 per share. Fast forward to today and it has had a major run up to around $210.

For those who joined me to invest in Coinbase over the last two yearsyou are already enjoying significant gains. But there’s reason to believe Coinbase could climb even higher in the year ahead as it positions itself to capitalize on both emerging revenue streams and a potential growing 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.

Coinbase has traditionally generated most of its revenue through transaction fees, a model that is highly dependent on trading volume and vulnerable to market fluctuations. Recognizing the need for stability, Coinbase began building additional revenue streams, particularly stablecoin revenue, which is now the second most profitable segment.

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

This strategy has paid off, with stablecoin revenue reaching a record $250 million in Q3 2024. However, this flow may be affected as Federal Reserve perform a rate reduction cycle in the following year.

But this is where Coinbase’s diversified revenue model will start to shine. While a rate cut could diminish the income generated from stablecoins, it could simultaneously trigger a new crypto bull market.

As rates fall, the cost of borrowing falls and liquidity in the economy tends to increase. Historically, a low interest rate environment encourages risk appetite, often leading to greater capital flow to riskier assets such as cryptocurrencies (as seen in the bull market of 2021, when rates were at almost 0%).

With the market expecting interest rate cuts to 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 activity from the market, could start to see significant growth in the coming year.

How high could Coinbase go?

There is one metric that can help us gauge Coinbase’s potential in 2025: exchange volume. A key metric that helps us gauge the state of the crypto cycle, trading volume can be seen as an indicator of investor interest and tends to rise and fall with market cycles.

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

This potential market fluctuation has major implications for Coinbase. At the height of the previous round, over 90% of Coinbase’s revenue came from transaction fees. Instead, transaction fees now make up just 47% of its revenue, reflecting Coinbase’s successful expansion into other revenue streams. This means that as volume increases, Coinbase has more ways to monetize its platform than it has 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 sources of revenue such as blockchain rewards, custody fees and other subscriptions and services, which are highly correlated with crypto prices.

Although speculative, some raw “behind the napkin” math shows that if the exchange volume approaches or exceeds the $550 billion peak of the last bull market, Coinbase’s diversified revenue streams could produce record revenues 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 could Coinbase be in a year? If a crypto market bubble does indeed break out with increased liquidity due to lower interest rates, Coinbase could see a substantial boost. With its diversification efforts paying off and forex trading volume set to rise, it wouldn’t be surprising to see Coinbase not only retest its previous highs, but possibly set new ones as well.