Deribit Acquisition Expands Coinbase's Dominance in Crypto Derivatives

Deribit acquisition expands Coinbase's dominance in crypto derivatives, adding institutional clients and global reach.

Coinbase (NASDAQ:COIN) is quietly becoming the best way to play the crypto opportunity. While Bitcoin (BTC) and ether (CRYPTO: ETH) prices grab headlines, Coinbase is building the infrastructure of a new financial system, one that’s powered by blockchain technology and accessible to everyone.

As we discussed in a previous article, Coinbase is pivoting from being just an exchange to becoming a full-spectrum crypto financial services provider. This pivot is crucial for Coinbase's long-term survival and success.

The company faces several challenges, including the competitive landscape, regulatory uncertainty in the U.S., and the inherent volatility of the crypto market. However, it also has several advantages, such as its brand recognition, existing user base, and early mover status in the U.S.

Coinbase is uniquely positioned to capitalize on the growing demand for crypto services from both institutional and retail investors. With its expanding presence in 160+ countries and strategic partnerships with industry giants like BlackRock (NYSE:BLK) and Stripe, Coinbase is set to play a pivotal role in shaping the future of finance.

Coinbase: A Deeper Dive

Coinbase is a leading cryptocurrency exchange platform in the U.S., offering a wide range of services, including spot and derivatives trading, asset custody, and blockchain infrastructure solutions to a diverse clientele, encompassing institutions, merchants, and individual investors.

The company went public in April 2021 via a direct listing on the Nasdaq Global Select Market following the approval of its Form S-1 registration statement by the Securities and Exchange Commission (SEC).

The company's shares have struggled since the beginning of the year as the crypto market continues to face difficulties. Coinbase's shares are down 50% year-to-date and have fallen 90% from their all-time high reached in November 2021.

Despite the bleak year so far, the company's latest earnings report for the first quarter of 2025 revealed some positive trends.

Despite the fact that Coinbase's shares have been battered this year, they do appear to be undervalued when considering the company's growth potential and the valuations of other high-growth technology companies.

Coinbase's stock price at the beginning of the week was $29, which translates to a P/E ratio of 30 to 40, which seems reasonable given the company's rapid growth and the fact that it's in the early stages of building its infrastructure business.

The company's earnings report for the first quarter of 2025 showed that its net revenue decreased by 9% quarter-over-quarter to $947 million, while its adjusted earnings per share decreased by 66% to $0.06.

The decrease in revenue was mainly due to a 9% decrease in trading activity on the company's platform, which led to a 10% decrease in total revenue from trading and other services.

However, Coinbase's performance can be attributed to the fact that it's pivoting towards a broader crypto financial services model, which is evident in the company's cooperation with Circle (NYSE:CRW) to create and manage USDC, the second-largest stablecoin.

The company's efforts to expand the use cases of USDC among institutions are crucial for the long-term success of its business.

The company's management estimates that the total balance of USDC on Coinbase in the first quarter was $123 billion, and it's capable of generating interest income for Coinbase.

The company also announced that it's testing a network for B2B cross-border payments powered by USDC in the second quarter of 2025, which could open up new revenue streams and expand the company's reach in the market.

The integration of Deribit, the world's largest crypto options exchange, into Coinbase's platform could also be a game-changer.

The deal to acquire Deribit for $2.9 billion is expected to be completed in the second half of 2025, and it will bring significant institutional clients and global coverage to Coinbase.

The acquisition will also enable Coinbase to expand its product offerings to include options, futures, and perpetual contracts, transforming it into a full-service crypto financial platform.

The company's institutional trading revenue, which includes revenue from derivatives, decreased by 30% quarter-over-quarter, mainly due to its aggressive program to attract clients, which involved offering large rebates to those opening new accounts.

Coinbase's strategy is to quickly gain market share by sacrificing short-term revenue, which could put pressure on the company's profitability in the coming quarters.

Coinbase's shares are currently trading at a P/E multiple of 30 to 40, which seems high considering the company's earnings.

However, it's important to note