(Bloomberg) -- Coinbase Global Inc. may surprise Wall Street by turning profitable for the first time in two years, bolstered by Bitcoin’s recent resurgence and cost cuts made during the last crypto winter.  

Needham & Co.’s John Todaro expects the biggest US crypto exchange to post net income of $103 million when it releases fourth-quarter results later Thursday. That forecast goes against the outlook of much of his peers, who expect Coinbase to record a loss of around $16 million, or 5 cents a share, according to analysts surveyed by Bloomberg.

Like most exchanges, Coinbase becomes highly profitable during bull markets since both retail and institutional investors typically trade more, boosting fee revenue. Bitcoin jumped almost 60% in the quarter, capping a 157% annual rally ahead of the January launch of US exchange-traded funds that invest directly in the cryptocurrency. Whether the ETFs help or harm Coinbase in the long run remains an open question. In prior quarters, analysts soured on Coinbase when it was stung by an industrywide decline in trading. 

“They still have an image of Coinbase as an unprofitable company,” said Owen Lau, an analyst at Oppenheimer & Co., who also expects the exchange to report a profit. “I think it can start changing.” 

That may already be priced into investor expectations. Coinbase’s shares have dropped around 2.2% since December, after surging almost fivefold last year. The price is still less than half the record high set in 2021.    

Coinbase rose as much as 7.8% on Thursday after JPMorgan raised its recommendation on the stock to neutral from underweight. The broker noted that the “surge in Bitcoin price takes crypto market and Coinbase earnings power higher.” Bitcoin has jumped another 25% already this year, rising to more than $52,700.

Coinbase was unprofitable through the crypto downturn that started in early 2022. Revenue plunged by more than half in that year from its 2021 all-time high. During the downturn, Coinbase co-founder and Chief Executive Brian Armstrong laid off hundreds of workers, helping to lower expenses. 

A return to profitability would likely set the groundwork for a recovery in 2024, Todaro said. He forecasts net income of $1.2 billion for the current year, compared with a likely $75 million loss for all of 2023. Analysts surveyed by Bloomberg expect a $27 million loss this year, despite anticipating revenue growth.

One of the biggest concerns is whether US retail users - Coinbase’s bread-and-butter customer base - will come back as token prices heat up. Much of the recent activity has been driven by institutional buyers, analysts said.

What’s more, the ETFs may pose a threat to Coinbase’s core business. Some of the exchange’s retail customers may opt to buy Bitcoin through the ETFs instead of Coinbase. The exchange charges fees for trades, while most of the ETFs are currently at least temporarily fee-free.

“The ETFs change the game,” said Ryan Coyne, an analyst at Mizuho Securities. “The ETFs are likely going to be a catalyst that drives industry prices lower, not higher.”

The ETFs may already be pressuring fees. On Feb. 1, Coinbase said it may charge no maker fees to traders from other exchanges with over $500,000 in monthly trading volume. The firm’s market share declined to 5.41% in January from 6.5% in the year-ago month, according to CCData.

While the exchange is the custodian for eight of the Bitcoin ETFs, “we think the direct revenue COIN has earned from custody has been de minimis from the ETFs,” Todaro said. 

Coinbase Custody’s Bitcoin balances increased by more than 4% in January from December, according to blockchain analytics provider Elementus. Its Coinbase Prime Bitcoin transaction volume — coming from institutional customers like ETFs — nearly tripled from December to January, Elementus estimated based on on-chain data. But institutional clients pay much lower fees than retail traders.

Meanwhile, derivatives trading volume fell 35% to $1.7 billion in January from December, according to data compiled by CCData. The decline hints at the subdued trading activity on Coinbase following the ETFs approval. 

Also weighing on its outlook, Coinbase is still fighting a lawsuit from the US Securities and Exchange Commission accusing it of operating as an illegal exchange, broker and clearing house. During a Jan. 17 hearing, Coinbase pushed for the case to be dismissed, and is awaiting a decision from the judge overseeing the case.

“Coinbase can be perceived to be a much stronger company in 2024 because they were just under very harsh, extreme scrutiny over the past two years from regulators and investors,” Lau said. “I do think Coinbase comes out much stronger after this scrutiny.”

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