The news: Crypto exchange giant Coinbase finished 2021 with a strong Q4 performance across its user-related metrics.

• Trading volume was $547 billion, up about 67% quarter over quarter (QoQ), when it was $327 billion, and soaring by around 515% year over year (YoY), when it was $89 billion.
• Monthly transacting users (MTUs) hit 11.4 million, up around 54% QoQ from 7.4 million, and surging YoY by about 307% from 2.8 million.
• Assets on platform reached $278 billion, an approximately 9% QoQ increase from $255 billion. However, they rose by about 209% YoY, from $90 billion previously.

Surging profit and revenue: The user-side growth was coupled with skyrocketing net revenue and profit.

• Net revenue hit $2.49 billion in Q4, a QoQ spike of about 102% from around $1.24 billion, while YoY growth was approximately 401%, up from $497 million.
• Profit more than doubled QoQ, with net income going from $406 million to $840 million. It also rose by about 375% YoY, from $177 million at the end of 2020.

Problems ahead: So far, Coinbase’s year-end momentum isn’t carrying over into 2022, per the company’s Q1 outlook.

• Declining crypto market capitalization (20%) and lower volatility (10%) is pinching the exchange.
• It projects falling QoQ MTUs, at about 10 million on average.
• It anticipates a QoQ trading-volume slump, giving a figure of about $200 billion.

The company’s full-year outlook is mixed:

• Its average transaction revenue per user (ATRPU) is expected to be less than its 2021 levels.
• It anticipates improved subscription and service revenue versus 2021.
• But it gave a wide range for annual average retail MTUs, of 5 million to 15 million, calling it “premature” to give one that’s more detailed.

The big takeaway: Coinbase’s choppy QoQ performance underscores the need to further diversify and expand its offerings beyond routine crypto trading while it waits for regulators to clear the way for mainstream crypto adoption.

• It’s already showing some positive momentum in this respect: 32% of its MTUs in Q4 used non-investing products in addition to investing products, which increased from 22% a year earlier.
• The company cited usage of Earn and Staking as helping to drive this trend, pointing out that the offerings have higher retention rates than investing.

Coinbase said it has two non-investing strategic pillars, in addition to bolstering its investing operations. That should help buffer its user metrics against market volatility.

• It will push “crypto as a financial system” through initiatives like broader access to its Coinbase Card, a rollout of crypto-backed loans, and its recently launched fund-transfers product from the US to Mexico.
• It also plans to push “crypto as an app platform,” which entails investments in Web3 applications—Web3, it said, “represents a decentralized, community-governed internet with modern functionality.” This means simplifying its Coinbase Wallet and adding features to it, and launching a non-fungible token (NFT) marketplace called Coinbase NFT.

Coinbase’s diversification could lead it into neobanking for consumers—perhaps by teaming up with a banking-as-a-service (BaaS) to power the products—which could enhance its user engagement. Its strong brand recognition as a market leader (that memorable dancing QR code Super Bowl ad didn’t hurt) could also help further Coinbase’s future evolution into a digital financial institution with a large breadth of offerings.