Coinbase has 'first move advantage' as bitcoin ETF custodian

Shares of crypto exchange Coinbase (COIN) continue to run higher into Friday's pre-market trading after reporting its first quarterly profit since 2021. Coinbase excelled past top and bottom-line earnings estimates, coming as bitcoin (BTC-USD) rises above $52,000 on the spot ETF hype. In an interview with Yahoo Finance on Thursday, Ark Invest CEO Cathie Wood characterized Coinbase as "executing brilliantly."

Oppenheimer Analyst Owen Lau joins Yahoo Finance Live to break down Coinbase's fourth-quarter results and its position in the crypto space.

"Last night, on the earnings call, I asked the management team that specific question — How much investments they have in anti-money laundering," Lau says. "The answer I got from the CFO was that they invested a lot of money in this area, because if you look at the last one or two years during crypto winter, FTX and even Binance found some trouble in this area."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video transcript

- Shares of Coinbase surging in pre-market trading after reporting its first quarterly profit in two years. The crypto exchange seen net income of $273 million in its fourth quarter, that driven by the approval of those first spot Bitcoin ETFs.

"Yahoo Finance" spoke to Cathie Wood, whose ARK Invest holds large amounts of Coin shares across its entire portfolio of active ETFs. Here's what she had to say about the results.

CATHIE WOOD: Well, one of the things that it's doing right is that it is, from a regulatory point of view, the most compliant exchange out there. And it's losing all its competition.

I think they're also in the right place at the right time. And they're executing brilliantly.

- Executing brilliantly. That is the big question for our next guest. We've got Owen Lau, an Oppenheimer analyst. And Owen, it's great to speak with you. I want to zero in on that quote from Cathie. Not to disagree with her here, but when I speak to my sources in DC, they tell me that they're actually excited about Binance and the increase in their budget towards compliance. Over 30% more allocation there.

To what extent are you weighing compliance budgets as a way to suss out the performance of these crypto names?

OWEN LAU: I think this is a very important question. That's why last night on the earnings call, I asked the management team that specific question. How much investments they have in anti-money laundering? The answer I got from the CFO was they invested a lot money into this area, because if you look at the last one or two years during crypto winter, FTX and even Binance got some trouble in this area. So I think this is a very important area. And Coinbase is a public company. So I do think they have invested enough money in this space. But we will see. We'll keep asking this question in order to make sure customers and shareholders understand what's going on.

RACHELLE AKUFFO: And Owen, of course, a lot being made of Coinbase being the custodial-- crypto custodian for the spot Bitcoin ETFs. But we're also seeing the SEC and US lawmakers putting some pressure here, as a lot of these banks didn't get to cash in on that because of these laws they have regarding capital allocation, and really offsetting the liabilities if they were to have crypto in custody.

Seeing that potentially moving faster, what does that do to Coinbase's edge?

OWEN LAU: What I've heard is some of the banking trade group is trying to push the SEC and the Congress to make some regulations to allow some of these banks to hold crypto longer term. It could increase some competition in this space.

But a custodian is a very sticky business. So I think Coinbase has a first move advantage Coinbase has eight out of the 10 spot Bitcoin ETF as the custodian. So because of this first mover advantage and Coinbase, it's a critical infrastructure in this space. And these large banks or these large issuers trust Coinbase.

So I felt like their position is still pretty strong, even though if the banks can hold digital asset going forward.

- Owen, could a newbie to the space take significant market share from Coin at this point?

OWEN LAU: In my opinion, it is very hard. We saw some newbies-- even FTX was a newbie. They tried to do it with zero or very low fee. It didn't work out well, as we know. Some other companies may come in the future.

But right now, I felt like after this crypto winter, some of the bad actors are out. Some of the strategy, they thought that it worked, it didn't work out. So in my opinion, it is very hard.

We will see additional entrants in this space, but very hard to steal market shares from Coinbase, I think.