Unchained - In Q2 Earnings, MSTR Surges, and Coinbase Stumbles. But What's Next? - Ep. 879

Episode Date: August 2, 2025

Strategy posted a record $10 billion in net income. Coinbase missed estimates and stock dropped. But analysts say both tell a deeper story about how crypto companies are adapting. It’s earnings season in crypto—and the stories couldn’t be more different. Strategy (formerly MicroStrategy) just posted $10 billion in net income, boosted by Bitcoin’s price and new fair value accounting rules. But can the company keep this up? Coinbase missed Q2 estimates, sending its stock down. Yet Owen Lau of Oppenheimer says the long-term setup may be more bullish than the market thinks. In this double interview, Unchained’s Steven Ehrlich sits down with: Lance Vitanza from TD Cowen to break down Strategy’s accounting shift, capital markets evolution, and whether its growing BTC pile presents systemic risks Owen Lau from Oppenheimer to unpack Coinbase’s earnings miss, how new bank partnerships may remake it as a TradFi infrastructure provider, and why Q3 may tell a different story Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com Thank you to our sponsors! Mantle FalconX Guests: Lance Vitanza, Lance Vitanza, Managing Director & Director of Equity Research at TD Cowen Owen Lau, Executive Director and Senior Analyst in the equity research department of Oppenheimer & Co Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey everyone. Today's episode features a special earnings season doubleheader with two in-depth interviews conducted by Unchained Executive Editor Stephen Erlich, who also writes our Bits and Bips newsletter. First, Steve speaks with Lonz Vitanza of TD Cohen about strategy's blockbuster Q2 results. The company posted a jaw-dropping $10 billion in net income, but the big question is, how much of that is real, repeatable, and sustainable? Then he sits there. down with Owen Lau of Oppenheimer to unpack Coinbase's weaker than expected earnings. The stock dropped big after the report, but Owen argues that the long-term thesis may actually be strengthening, especially as Coinbase deepens partnerships with major banks and

pivots further into crypto infrastructure. Stick around for both interviews. They're packed with sharp analysis and they go well beyond the headlines. Hands up, everyone, we've got exciting news. Bits and Bips, our Macro Meets Crypto Show, is officially spinning off into its own podcast feed, YouTube channel, and X account. If you've been enjoying the deep dives into interest rates, monetary policy, and how they intersect with the crypto markets, make sure to follow bits and bips wherever you get your podcasts on YouTube and on X. You'll find the links to YouTube, X, and other podcast platforms in the show notes. If you're watching this, there's a QR code on screen. We'll be posting here

for a few more weeks, but starting in September, Bits and Bips will launch on its own feed. For now, we will publish longer clips from the show on those accounts. Remember, go to the show notes now and subscribe to bits and bips. That's bits plus sign bips spelled BIPS on YouTube X and wherever you get your podcasts. Mantle is pioneering blockchain for banking of revolutionary new category at the intersection of Tradfai and Web3. Follow Mantle underscore official to learn more. Imagine an AI that speaks crypticry and does the work of a team of analysts.

Trusted by 80-plus institutions, now open to serious traders like you. Visit askfocal.com. Good morning, everyone. I'm Steve Erlich, executive editor here at Unchained. I'm here with Lance Vitanzah, managing director of equity research at TD Cohen, and an active follower of strategy.

And we wanted to talk with you this morning to sort of digest this blockbuster earnings report that strategy just released. So, Lance, welcome. Thank you for having me, Steve. So let's just start there. What were some of the big highlights that you saw in their Q2 earnings? Well, for me, the biggest highlight is that the company has increased its full year Bitcoin yield guidance

for 25 to 30%. The 30%, which is their new target, still appears conservative to me, but it represents a doubling of the introductory guidance that the company first established earlier in the year. So I think that any time a company meets its raised guidance for the full year within seven months of the year, which is what strategy announced yesterday, and then increases their guidance to be a double of where they started the year, I think that has to be considered pretty strong performance. I can't think of too many companies that I've covered that have ever been able to to pull that off. So what would you say were the main drivers behind their ability to do this?

I mean, I mean, they're known for being aggressive in their targets anyway, and they blew them out of the water halfway through the year. Well, certainly the regulatory backdrop has been very conducive for strategy and for other public Bitcoin treasury companies or PBTCs, as I like to call them. We've had a number of favorable developments, including the FASB rules change, including just yesterday you saw in the crypto report coming out from the White House that there would be basically an emphasis made to preserve favorable tax treatment for unrealized digital and crypto gains. So there really couldn't have been a better backdrop. And you've seen that in the price action of Bitcoin. Bitcoin has had a very good run over the past 12 months. I mean, it's been volatile. But certainly it's had nice favorable trajectory.

That has helped. But then, of course, give credit where it's due. I wouldn't say that strategy has just been aggressive. I would say they've been very creative in terms of how they've approached the capital markets. They've gone after it in a very systematic approach. They've targeted specific pockets of the capital markets. For example, first, the convertible bond market. They were very successful in raising, and now they have about $8.5 billion worth of convertible

notes out scanning. Many of those, 2 billion of those came earlier this year. Then they went after the convertible preferred market with their strike issuance. That was successful. They then went to the high grade, highest quality corner. of the preferred stock market with their strife offering. And then most recently, they came out with a new instrument that's designed to appeal to more of a retail-oriented investor.

And so I think that the creative approach, their ability to very efficiently issue capital and then funnel that capital into Bitcoin has been the big driver in terms of how they've been able to put up these great yields and these great gains for their common shareholders. Okay. So let's talk about that. And you mentioned the New Phasbee guidelines, which I think was spearheaded by Michael Seller himself in order to let them mark their holdings to market, as opposed to just having to record losses during downturns. $10 billion in profit is massive. But I know there are some questions about how much of that sort of like outsized performance might just be because they recently started. using these new guidelines. Could you maybe put their performance in historical perspective

if they had the ability to go back to August 2020 and mark their holdings to market way back then? Sure. What we would see if we've gone back and done that and we'd see that

the progress is definitely going up and to the right. There is no question that restating 24 in particular would have shown pretty dramatic gains, but not as big

as the gains. that we've seen so far in 2025. So through yesterday, the company had reported over $13 billion of Bitcoin dollar gains. Now, that just represents the value of the incremental Bitcoin that they have created without issuing any additional common shares. It ignores the additional value from the fact that Bitcoin has increased dramatically over the period. If you compare that $13 billion year-to-date number in 2024, which was a big year for the company, but the total was $12 billion for the full year. So again, they've exceeded the full

year 24 number in just the first seven months of this year. And their new guidance, of course, is $20 billion. So they're sort of saying, hey, we think we're going to double what we almost double what we did last year. So I think that it is true that while the growth looks astronomical when you compare it to non-FASB altered numbers, even if you were to go back and recast those numbers, you'd still see very strong growth here. So let's talk about some of their plans for the capital stack

because I know a big part of the earnings related to some announcements there. For one, it does seem like they're looking to move past, convertible debt. I know that they have a relatively clean balance sheet in terms of debt vis-a-vis book equity and just unencumbered Bitcoin holdings, but it appears they're trying to retire that. So maybe we start there. What did you hear and what do you think that means for their capital market strategy moving forward? I think it's a good thing. It demonstrates the favorable evolution and their ability to access the capital markets. I think the convertible bond market, given that it is, you know, rife with hedge funds.

funds and arbitraiserers who are seeking, you know, basically they're taking long exposure on micro strategy by buying the convert, but then they're on a heavy delta, and then they're shorting stock to basically reduce their net exposure, something like 25%. So they're selling a lot of stock for every bond that they buy, and they're just a little bit long micro strategy. That was the best avenue for the company years ago, but as the company, as micro strategy has grown, they've been able to access the preferred stock market where you just see much better terms, much better appreciation, much better torque, much better efficiency in terms of pricing. So there are just a lot of reasons why as the company has grown, it no longer has to be

dependent on the convertible bond market. Now, the interesting lesson here, I think, is that I see this path that strategy is, this trail that strategy is blazed, I see this apply to many of the upstart PBTCs, the 21s, the pro caps of the world, others, where I think that it'll be common for many of these companies to begin their journeys as PBTCs in the convertible bond market. And hopefully some of them will grow large enough and be successful enough that they will then ultimately gain access to preferred equity market. And then you'll see them sort of follow that same path where they maybe come to, if they're

fortunate, they'll come to rely less on convertible debt and more on some of these other credit-oriented instruments. That was going to be my next question because, and I know that you can only publicly talk to our companies that you actively cover. But when we look at all these other crypto-chargery companies and not just the ones focus on Bitcoin, but looking at Ether and Solana and further out on the on the all-point landscape, I mean, we see pipe deals. We see a lot of converts. Like, we see specs. And it looks like it's really just a huge race to, it's such a momentum game.

And strategies sort of in its own world still at that point that like these other. companies are doing everything that they can to just get as much size as quickly as possible so they can continue to raise accretively. Maybe just talk a little more about the convert because those make up meaningful parts of those cap stacks. You said it's the right time for them to be doing this. What are some of the markers that might suggest that they can move into the preferred equity market as you mentioned or just in a general sense, what are some of the risks that investors who might be either buying this debt or buying equity in these companies should know if they also have a large amount of debt. Well, it's a good question, and I'm not sure I can give you a great answer.

I would just say they need to be a lot larger than they are today. If you think about how big micro strategy was, strategy was in terms of its market cap, in terms of its Bitcoin holdings, it only, it'd been doing this for four years. It started in fall of 2020, and it wasn't until early this year in January that strategy issued its very first preferred equity instrument. And that was at a time, obviously, where the stock had already done very, very well.

It was already there to be company. So I think that, you know, look, the good news, I think, is that convertible debt financing can be very accreted. And micro-strategy has shown that. So having to start out or starting one's PBTC journey in the convertible bond market can be very lucrative,

can be very accretive for common shareholders. If it's done correctly, time will tell as to how well these new companies execute. I want to just add here, though, that from the standpoint of strategy, which is the company, none of these companies, look, this is not a winner-take-all situation.

There is room for many, many PBTCs, in my opinion. I agree with Michael Saylor, who has been very actively, courting other companies and doing everything he can to assist them to become PBTCs. And he's doing it for all the right reasons. It will ultimately increasing PBTCs. They're not all competing for a fixed pool of capital. The more PBTCs form, the greater will be the pool of capital that the PBTC sector will

attract, at least in my opinion. And I think that the more integrated, you will see Bitcoin. coin into the broader global financial system. So all of those are conditions which will be beneficial to strategy. So I think strategy is helped, not hindered by additional PBTCs going forward. Something else that was mentioned during the report I wanted to ask you about is I guess this new promise not to issue more common chairs unless the MNV remains over one. And I guess that's to ensure that they're continuing to raise accretedly and not to unnecessarily dilute

shareholders. This is a big this I think is something that will be reassuring to investors and maybe something that, but I also wonder like how replicable that may be across the entire ecosystem

because like there are companies I know some were traded below its premium for a little while this year. It might be over now. And there could be other companies in the future that trade below and then they may have to they may try to raise more money with the promise of bigger returns moving forward so just what are your thoughts on on this sort of pledge that the company made and yeah sure um so uh i think that um you know i i can't really speak to what other

companies may or may not do but from the standpoint of strategy i i don't think the the commitment to not issue when MNAV is less than one is terribly novel or unexpected. I mean, they've never done that, and we certainly wouldn't have expected them to do that. What we do find interesting, though, is they're pledged that unless MNAV is 2.5 or high. So unless they're trading, in my terms, I prefer to talk about a premium. Unless they're trading at 150% premium to FNAV, they're not going to issue equity except to pay. dividends, interests, and perhaps some other kind of general corporate expenses.

But they won't be using, they won't be issu. So in other words, they can be trading at a MNAV of two, and they won't issue common stock to go out and buy more Bitcoin. That, to me, is different. Clearly, that represents a change because the company has very recently issued meaningful amounts of common shares at MNAVs well below 2.5, I think less than, less than too, if I'm not mistaken, probably as low as 1.8, 1.9, certainly. And so, so that is a change. And to your point, though, I do, I agree with you. I think it will be very reassuring to,

to common shareholders going forward. At the same point, I guess the question is, you know, does that put pressure, how much pressure does that put on the company's engine? If they are only going to be issuing common stock, you know, when the Mav is above two and a half, and today the MNAVs is, you know, is 1.8, something like that. Been two and a half, I think, late last year. Then they're going to need to lean pretty heavily on, and they don't want to do any more convertible notes, right? So they're going to need to lean pretty heavily on the new preferred issuance,

which, you know, up until today's date have been, I mean, what they've done in the primary markets has been, well, what they've done in their IPOs, I should say, has been spectacular. But what they've done on their ATMs has been, you know, I don't want to say underwhelming, but certainly it hasn't been to the same degree of enthusiasm that we've seen. We think that could change with the new STRC variable rate preferred. If you look at the volume of trading in the secondary market over the first week or so

of that issue is being listed on the NASDAQ, the volume is then very, very strong. And that suggests that we might see much greater issuance of that new preferred under its ATM facility. And as you know, that ATM facility was just implemented yesterday. At the same time, the company announced their earnings. They announced that they'd established the new STRC variable preferred ATM. Yeah. And I remember the first issue went and said it was upsized from $500 to $2.5 billion because of that exceptional end for it. So, and just to be clear as well, I mean, these are just pledges, like, theoretically,

and there's no reason to suspect that they'll go back on it, but like they could change their mind if they, if they needed to. There's nothing that would stop them from that, except because, like, impacting market. But I exactly right. Many Michael sailor followers have a lot of faith in it because of how dogmatic and orthodoxy's been about his, his diamond hand strategy since they started this back in August. One other quick thing, and then we're going to start wrapping up. They also started discussing more the Bitcoin per share metric. And sort of discussing how that can be used in conjunction with the Bitcoin yield metric

that Saylor introduced about a year, year and a half ago. Could you maybe just quickly walk us through the difference between those two and why the second metric? Well, there are two sides of the same coin. You can't calculate a Bitcoin yield without referencing Bitcoin for share, right? So, for example, if you see in our published research where we report the company's progress on Bitcoin yield, you can see quite clearly the Bitcoin for share stats that are underlying those data, right? So I don't really, I don't think we should make too much of this because they were always relying on Bitcoin for share. Why they decided to. show it in this particular instance. That's a fair question. I don't really know the answer, but I do think it is compelling. I mean, I like to think about it in terms of, hey, if you go back to the beginning of 2023, which wasn't that long ago, about 19 months ago, right, since that time, the company's increase in Bitcoin per share is 130%. So think about that for a second. You own more than twice as

many Bitcoins per share today than you did 130% more than you did, you know, just 19 months ago. That's pretty impressive. I like to think about it the same way when I think about the Bitcoin yield for 2025. If we pull forward to 2025, they've reported a Bitcoin yield of 25%. Well, what does that mean? That means that we own 25% more Bitcoin per share today than we did before. You know, do I care what the Bitcoin per share number is? Not necessarily. necessarily, right? I really care more about how quickly Bitcoin per share is growing. So for me, I believe that yield will always be more relevant than the underlying Bitcoin per share. But, you know, you can't have one without the other. Yeah, fair enough. Just one or two more

quick ones. I know this was something that you wanted to ask him yesterday. And it's a question that's on a lot of people's minds. Right now, strategy owns, I guess, a little less than five percent of all the Bitcoin that's ever been minted. And I wanted to get a sense of, I wanted to get a sense of like what the end game is and how healthy it is for companies like this to really market or sort of corner the industry when it could be argued, it's still kind of an infancy. So just to clarify right now with about 630,000 roughly Bitcoins, they own about 3%. of the total of Bitcoin that will ever be mine.

And that includes the, you know, roughly 5% of the Bitcoin that are presumed to have been lost. We're just taking, you know, the 630K over $21 million. It's about 3%. If we think about that in the context of, you know, what this company can do, I personally, and you're right, I did ask the question yesterday. And I thought the answer was, you know, was helpful. You know, the fact of the matter is the company has a long way to go. There will come a point necessarily someday when they own about as much Bitcoin as they, you know, can own before

before owning more Bitcoin starts to be counterproductive to the establishment, the further development of Bitcoin throughout the financial systems. But, you know, what is that 30%? 20%. Now, I'm not suggesting the strategy is ever going to own anything like that. My point. is that they, in theory they could, and it would not necessarily impede progress of establishing Bitcoin throughout the financial systems. The reality is, I suspect, and this is just my suspicion, I suspect that strategy has another 10 years to really go at it aggressively and acquire as much Bitcoin as they can. Our model, our published model we published this morning, shows them owning about 4.3% of all Bitcoin ever to be mined by the end of 2027. So that's up 130 basis

points in almost two and a half years. So if you sort of think about that, given that it gets harder to increase the law of larger numbers, right? So it's presumably they're not going to be able to increase, you know, it's, if you run that out, do you get to 10% in 20, in 2035, maybe, you know, somewhere. I don't have projection out that far, so I want to be a little bit cautious there, but you see what I'm saying in terms of progression over the next couple years and the rate of increase. Okay. And just last question. I know we started off the conversation talking about how they've increased some of their targets this year because of their success in implementing their accumulation strategy over the first six months. I know in the report that you published this morning,

you've also made some adjustments as well. So what are your targets through the end of the year based on what you saw yesterday? So we're now targeting a 32.1% Bitcoin yield. So that compares to 2.1% more than the company's sort of minimum or target at this point. And I guess what we're saying is that we think that the company is likely to increase the target. or exceed the target by the end of the year. Personally, I would not be at all surprised if they're pretty darn close to the 32% by, you know, by the end of the third quarter or at least the 30%. So I suspect that when they report the third quarter, they'll increase their full year guide yet again.

And to be honest, you know, I suspect the risk to my number at 32.1%. I think that there's arguably more risk to the upside than to the downside there. So what that means is that the company is going to, I think, you know, by their reported metrics, they'll have no problem meeting their $20 billion in a Bitcoin gain target, which again is up from $15 billion two days ago, and it's up from $10 billion when they first introduced guidance for Bitcoin dollar gain for 2025. So, you know, where that comes in, you know, time will tell. We calculate Bitcoin dollar gain a little differently. We look at the actual price paid for the Bitcoin rather than the ending period priced.

So our calculation is necessarily less. It doesn't compare apples to apples with theirs. So for what it's worth, we're forecasting the company to generate $15.3 billion of Bitcoin dollar gain this year. and actually we have 16 billion-ish in each of the next two years. So, you know, depending on how you calculate it, you can get to, you know, anywhere from 16 to 22 billion, depending on what sort of the, how you go about making the calculation. We take a more conservative tack, which we think is appropriate.

But again, you know, there's no necessary, there isn't necessarily one answer here. Okay. Great. Well, thanks for your time this morning. Thanks for coming on Bits and Bips. And we look forward to having you back. My pleasure. Thanks so much. Hands up, everyone. We've got exciting news. Bits and Bips, our Macro Meets Crypto Show, is officially spinning off into its own podcast feed, YouTube channel, and X account. If you've been enjoying the deep dives into interest rates, monetary policy, and how they intersect with the crypto markets, make sure to follow Bits and Bips wherever you get your podcasts on U.S. YouTube and on X. You'll find the links to YouTube X and other podcast platforms in the show notes. If you're watching this, there's a QR code on screen. We'll be posting here for a few more weeks, but starting in September, Bits and Bips will launch on its own feed. For now, we will publish longer clips from the show on those accounts. Remember, go to the show notes now and subscribe to Bits and Bips. That's Bits, plus sign Bips spelled BIPS on YouTube X and wherever you get your

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Hi everyone. I'm here with Owen Lau, Executive Director at Oppenheimer. Welcome, Owen. Thanks, Steve. Thank you for having me. So you're one of my go-to guys when it comes to tracking the latest developments in Coinbase. And they've released earnings yesterday. And I think it's safe to say that maybe expectations were sky high, but the market did not react well.

So why don't you just explain, walk us through what they reported and why investors are trading Gat on it today? Yeah, exactly. So we have been telling people that to be cautious going into the print because when we track the volume, trading volume and stuff like that, we saw around 40% decline in trading volume on a sequential. basis. First quarter was a good one, but second quarter, we knew that it wasn't that good. And when we look at the consensus number, which is compiled by many other analysts covering this stock, we still believe that the expectation was pretty high for whatever reason. And so we kind of expect this outcome. They came in very close to our estimate, but way below

consensus. And that's why the stock react pretty negatively today. I think the stock is still down around 16% today. But I don't think there's anything that we call out that raise any red flag because we knew that after the Liberation Day, there was a huge concern around recession in the second quarter. So at that point, when we see something like that, people tend to be more on the risk of mode and tend to trade less on crypto. That's why training volume came down. But again, it was within our expectation. It was just like, I think the consensus was just way too high.

Yeah. It's hard sometimes. I guess it's easy to forget because it was a few months ago, even though I guess today's Liberation Day part two, perhaps, that just how spooked markets were in early April when, when the tariffs were initially announced and they were just such large numbers. Something else that I know we've been reporting on, I know you cover it too. Perhaps some softness in demand was covered up by these massive treasury companies that are raising

billions and billions of dollars to buy assets that have nothing to do with retail enthusiasm. I know for myself, we've been tracking Google trends to get a sense of retail interest in buying Bitcoin and other assets. And it has been soft. I know that was reflected in Coinbase's earnings as well. Yeah, exactly. Sometimes you don't know how that could impact trading volume, but we do know there are lots of treasury companies being formed in the first half of this year. Sometimes it could be good.

Sometimes it could be bad. But it looks like at least when you see more buying power, you may have hoped that it could support trading volume. But it turns out that it did not in the second quarter. You never know because once these treasury companies being formed, they can waste debt. They can raise equities. Down the road, it can also increase the buying power of this crypto.

If they use Coinbase to be the custody or trading venue or execution partner, it could support these trading volume longer term. Or may not be just Coinbase, but also the whole industry without exchanges. as well as well. So I think too early to say there are so many treasury companies being formed this year, but we'll see how that plays out. Yeah. And I wouldn't be surprised if, I mean, Coinbase and frankly many other major exchanges were involved in Berger and some of these big acquisitions by the treasure companies. But, I mean, as you know, and I'm sure many people listening, though, retail traders are far more profitable than institutions, which is what this would

qualify as. So if there is not that carryover into retail, like the excitement we had during the NFT phrase, you're not going to see the same impact on the bottom line. But that also kind of puts extra focus on what has been a really big focus for Brian and Alicia and Emily and everyone over there, building out the subscriptions and services business as a counterweight to trading because it's, I think the goal is to always keep it above 50% of the total net revenue. and to just be able to smooth out these peaks and values that can come from trading flows. We saw the height in January and Q1. We saw the nadir here.

But I also know that performance in the subscriptions and services is disappointed. So what can you tell us about that? Yeah. So first of all, I think the company already guided the second quarter subscription revenue to be down a little bit from the first. quarter. So again, I'm not sure this is an actual surprise to the street. It is actually within or maybe even higher than the midpoint of their guidance. But again, I think there may be some disappointment was because you have Circle, you have the IPO for Circle. And people have maybe pretty high expectation about the market cap, how much revenue, Coinbase and Circle can capture.

And that's why there may be some high expectation dig in. But I would say, given what the management guided in the second quarter compared to what they actually printed, it was actually largely in line within expectation. If you look at the third quarter number, if you look at the midpoint, we are actually seeing a modest acceleration, around 7% acceleration or increase in subscription and service revenue from the second quarter to the third quarter. So you see that the goal hasn't changed. The momentum has not changed, which is the higher market cap, maybe high adoption, large adoption of stable coin.

So that's why larger market cap and higher revenue for Coinbase going forward. So I think that narrative still states. Okay. So let's talk about the biggest part of the subscriptions and services, the stable coin revenue. I think the collective community was pretty shocked when Circle released That's one and realized that perhaps Coinbase was making 10 times as much money from USC as Circle itself.

How Genius Act was just signed into law, so we're not able yet to see how that's going to impact the performance or the growth of USC and by extension the impact on Coinbase's revenue. But since that is the biggest part of this subset, what are your expectations? is what did Brian or Alicia or whoever, what did they say about it on the earnings call? Yeah, I think the bottom line is they expect that line item, revenue line item contribution to continue to go up going forward because Coinbase is also taking active steps to drive USDC adoption.

Think about their partnership with Shopify. Think about the partnership with Nodo Clear. Their goal is to draw, more usage of USDC. And it could be in the e-commerce space in terms of Shopify or the capital market space, meaning can we use USDC to replace cash as collateral going forward? I think Coinbase said, we can. And that's why you can drive the adoption of USDC, right?

And can we use USDC as a payment alternative to credit card or debit card? I think they fail, they can. And I believe so, too. it may take time. We may need to build more infrastructure, right? So we don't have it right now. I cannot just go to, I cannot just go to Starbucks or Costco and pay in USC. But you never know. In three, four, five years, it could happen. So I think the goal has been driving the usage of USC and then in return because Coinbase and Circle has a revenue sharing agreement, which is around 50, 50%, And that's how Coinbase can make money longer term.

So the outlook is still pretty strong for Coinbase for this line item. When I look at it, it's really interesting because I see Coinbase and Circle having a unique opportunity right now to grow and expand the integration of USC alongside e-commerce and other traditional areas of finance before JP Morgan and City and Bank of America and all of them come in. they still have sort of an open playing field. That's going to change. And then it's really going to, I guess, come down to perhaps two factors. One, how successful they are doing all this and how much demand there really is for stable points at U.S.DC. in real commerce and not just for trading.

And then two, will, because UFDC is, I guess, seen as somewhat neutral compared to like a JPM coin or CD Bank coin and whatever, I could imagine some users not want to keep track of 10 different stable. and they might just like USC because it's neutral. It's fair for everybody. Is that something that they discussed or do you have any thoughts on that yourself? Yeah, I think they discussed a little bit last night. My thought is it is similar to so-called I call private credit. Sorry, private label stable coin versus general purpose stable coin.

The concept is similar to private label credit card versus general purpose credit card. What I mean by private label credit card is it is like if you go to Macy's, you have a private label Macy's credit card. You can only use that within the Macy's ecosystem, but you cannot use that Macy's card outside of Macy's. But at the same time, you don't see that Macy's will not accept your general purpose visa and MasterCard credit card, right? So what I think what would happen is, yeah, it's J.P. Morgan, Citigroup, they will develop

their own stable coin. that's good because once they develop that infrastructure, which is I keep emphasizing, we don't have it. But once they spend money, develop that infrastructure, it becomes another payment rail. So once they have that rail, why don't they also accept the point you just make Circle or USDC or USDT because they provide neutrality, just like general purpose credit card. So to me, going forward, we will see private label stable coin, which is JPM coin or Citiguin, and then they will also accept general purpose stable coins, such as USDC or USDT, some other like these kind of stable coins.

So that's how I foresee what would happen in the future. Okay. So let's talk about a few new, I guess, private rollouts or announcements that they've had in recent days. For one, there was a big unveiling of the new base app designed to kind of be like the Everything app. They're tokenizing stocks now. they've just launched domestic perps, I guess, to complement their international offering. I believe they're also doing regulated derivatives futures as well. They do have.

So maybe as opposed to asking a question by each one of those, maybe just talk to me about, put those together. What was the narrative behind them? And how soon might we see meaningful revenue deriving from many of that? Yeah, I think the company is very excited about the super app, the base app. They have an event, I think, two weeks ago. They announced that base app. I'm excited, too, because I don't see a super app, just like ReChat in China, right? We don't see a Rechat in the U.S.

I think the ambition is to create that super app that WeChat in the United States. So I'm excited about this. They are also excited about this. I think they mentioned that they have the waitlist, then that way list has 700,800,000 people already register in the way list. So you can tell. Just not just people trying to farm a base token because I'm not sure one's coming anytime soon. Exactly.

So it's coming out. I don't know, pretty soon. We will monitor that situation. But I think this is a very interesting development. In terms of like the monetization, right, going back to the analyst or investor end goal, it will support their trading revenue, support the custody revenue and support maybe even USCC because this app would allow people to use USDC as a form of payment.

So again, it's an ambitious goal, but if they can succeed, it will be big for Coinbase. And then the other point you talk about it's the derivative business. It was gigantic in the second quarter. If you look at the international derivative volume, it actually exceeded $1 trillion notion of value. in the second quarter, even though they don't charge lots of fees on that. So from a revenue contribution standpoint, it wasn't that much, but it's getting larger and

larger. They're competing against the largest exchange internationally. So I do feel like they have some pretty good initiatives going on that can support the earnings in the out quarters and out years. And how much bigger will that derivative business fee once they close their $2.9 billion acquisition of Deribut? It will be very big. So now they have the perps internationally.

They are going to launch the perps in the U.S. And they don't have much option presence, if you recall. So there are a bit one of the key reason why they do it. It's number one, they don't have a strong options trading. And the second thing is they can bring the technology to the U.S. And they expand in the U.S. massively, probably next year. I don't have the number right now because, again, the financials are not disclosed yet. We'll get the number in the third quarter, so I can't tell you I cannot quantify at this

point, but I'll definitely update you guys in the next quarter when we get the numbers. What did they say about activity on base? I know that that continues to grow. Is that meaningfully contributing to revenue yet? We have been tracking the base activity. It has been doing okay in the second quarter versus first quarter. From a revenue contribution standpoint, no. It's still not material, maybe less than maybe 1% or so to Coinbase revenue. So now this is still a, kind of an optionality for us, but it could be getting much bigger maybe in three, five years or so. So there's been, we've talked about a bunch of, actually one more positive, and then I want to ask you about one potential headwind. The other, I guess the other two big announcements that I want

to make sure we cover the partnership with JPMorgan and then the partnership with PNSC Bank. Obviously, those are massive new distribution channels. JPMorgan in particular to onboarding customers and make it easy to deposit funds, send funds and withdrawal funds. I used to work at Cracken, so I know how much of a pain point that can be for users and for the operators. What did they say? about those partnerships? Yeah, so the JP Morgan one could be the blueprint, right, for the partnership going forward with other banks. So now they become a back-end, white-label technology provider to these big banks.

So they're not like, oh, trying to push the Coinbase brand to JP Morgan. JP Morgan still control the user experience, still control the consumer data and also the the customer and all the good stuff, but in the back end, Coinbase become the technology provider. So that's the key thing. I think that's one thesis we have with Coinbase, which is it is not just a trading platform. It can be an infrastructure provider for many traffic companies. If they can do JPMorgan and PNC, I'm confident that they can do the similar to some other banks, right? So going back to what they do, they mentioned that I think there are around 80 million customers they can access to right now within JPMorgan network.

And now if you have the JPMorgan credit card, you can use that credit card to buy crypto. Use that to fund the crypto purchases, which is not allowed in the past, by the way. The second one is- They don't like it when people borrow to buy crypto. Exactly. Exactly. really big step for for jp morgan and jbby diamond in particular now become a closing i think close to become a reality that you can use your credit card jp morgon credit card to buy crypto i think a long

time ago they they either let a lot of banks let people use credit cards or maybe they just didn't realize that their clients were using their credit cards to buy crypto and i know they put a stop to that because exactly it's it's not like you can't use a visa card to go um in the casino artist. Exactly, exactly. And the second point I do want to point out is they allow people to redeem the reward, like the credit card reward, and then transfer to USC or transfer to base and get to USC. So what that means is now they make the reward points to be fungible to crypto. That could be another key thing that I do feel like crypto has the potential to become part of the loyalty program per se. So that makes this transaction much more seamless between your maybe in the future,

maybe your airline, airline rewards, right? Your AMC rewards. Now JPMorgan credit card rewards to buy to exchange to USC. And then finally, the third point is they allow people to seamlessly link the Chase accounts to Coinbase account and then you can buy crypto easily. So those are the key thing that you see they have very tight relationship. They're building a very tight relationship going forward. Just two more quick ones, because I know we're getting close to time. I don't know if it's a coincidence or not, but JP Morgan announced a few weeks ago that they were going to try to start charging FinTechs for access to customer data through APIs,

and PNC CEO basically cheered on Jamie Diamond in making this announcement. Coinbase happened to partner with both. It could be a coincidence, but maybe. Maybe not. What are your thoughts? I don't know. It's hard to speculate. You know, they may have a deal. I don't know for sure. It could be a coincidence, just like what you said. But I don't have a, you know, strong view one way or the other.

If, you know, the banks decided to charge fees for feeding data to fintech company, you know, they can do it. But the bottom line is we just need to understand the dynamic and the partnership and whether it will actually hurt the bottom. of this fintech company. But so far, I haven't heard anything that the fee would be massive or whether they are actually, or Coinbase is actually paying any fee for that. But we'll see. We'll get more information down the world if that's actually happened. Yeah, I mean, that's actually a much bigger story.

It's something that I'm working on right now. And it's a much bigger story than just crypto. I mean, it's fintech. Yeah, or fintech companies, exactly. So it's much bigger than just Coinbase, but it affects, could be potentially affect like a lot of. And there's an open banking rule as well. I think about that.

It should allow, you know, a consumer to move the data freely. So there are lots of like things involved in that conversation. Yeah. Well, yeah, the idea is I think that open banking rule, the CFPB wanted to vacate it. And then they decided not to. And now there's going to be like a new rulemaking process.

And, you know, exciting stuff. We were worried that all the DC drama was going to go away with the clarity act and genius being signed. Well, we have something new. know. Anyway, we're kind of at time. I'd like to just get a sense from you, like what your expectations are for the next six months. A big, a lot of anticipation for a market structure bill, be it clarity or work or something else. I know, especially like the fourth quarter tends to be pretty bullish for crypto. What are your sort of takeaway thoughts? Yeah. So for the industry and

for the company, so for the industry, I think there will be more regulatory clarity, right, Clarity Act could get signed into the law, hopefully by September. And then there will be, to me, I think that may support something I call Artcoin Summer, right? Because we have clarity on Ethereum and Bitcoin already. But how about Kadano and O'Sahner and Doge and all these other tokens? We don't know, but we may get more clarity. The second one is there may be like more crypto companies.

They want to go public. So you may see some more IPOs and crypto companies trying to raise funding and things like that. The third one may be consolidation, right? When you see kind of the regular clarity traffic companies may come in. When they come in, they may also want to buy crypto companies, right, to support their crypto purchases or infrastructure. And also smaller players may also want to consolidate and merge to become bigger to get the scale. So those are the three key themes I'm looking for for the industry. For the stock, Coinbase, I do want to address that.

I know the stock is down quite a bit today, but to me it's expected. But the backdrop, it's pretty good. Again, improving trading volume, improving S&S revenue in the third quarter, and also regulatory clarity. Remember, they have not even baked in the Deribit number into Coinbase financials. and Coinbase has a very strong balance to grow organically and inorganically. So the backdrop for earnings growth is actually not bad for Coinbase. So to me, it could be a good buying opportunity. Okay. All right. Thanks for joining us. We look forward to joining you back.

Thanks a lot. Bye.