Aiera/aiera-transcript-sentiment huggingface dataset:
We told you before we want to be the Amazon of assets.
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And today, we see 59% of our trading volume in Q3 coming from other crypto assets.
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We don't know precisely which assets customers are going to adopt.
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So our strategy of wanting to support all legal assets will give our customers the broadest and safest choices to do so.
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Second, our customers are deepening their engagement with our product suite.
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28% of our retail MTUs that invested also engaged with a second product on Coinbase in the quarter.
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And 49%, nearly 50%, of our MTUs are engaging with noninvesting products overall.
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We see this as a great indication that we're moving to the utility phase of crypto.
Sentiment: positive
Third, our subscription and services revenue was strong at $145 million.
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We are pleased to see this growth despite the impact of volatility on the transaction revenue.
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And again, this is just an encouraging sign that crypto is increasingly moving to utility, particularly with use cases around yield and rewards.
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In our shareholder letter, we noted that Q4 is off to a strong start.
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Volatility and crypto prices both increased in October, which has resulted in October monthly transacting users of 11.7 million and October trading volume of $186 billion.
Sentiment: positive
Additionally, as I mentioned before, we've seen an increase in retail fee rates in the month of October.
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As a result of this strength, we've increased our MTU scenarios for full year 2021.
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Our low is now 8 million MTUs, which is the average over the course of 2021; and our high is 8.5 million, as outlined in our letter.
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We also shared that we anticipate our 2021 annual average debt transaction revenue per month will be in the high $50.
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On the expense side, our updated outlook reflects our strengthening view of Q4, including transaction expenses in the mid-teens as a percent of our revenue.
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Sales and marketing will be higher compared to Q3 as we ramp up our brand investments.
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And our tech and dev and G&A spend should come in, in the neighborhood of $1.4 billion combined.
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It's important to note that, that excludes, i.e., does not include, the stock-based compensation.
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With that, I'll turn it back to Anil to get started with Q&A.
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Before getting into Q&A, I wanted to clearly lay out some principles for our Q&A session today.
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First, we will answer the most up-voted questions determined by a number of shares and may group questions together that touch on the same themes.
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Second, we don't plan to answer questions related to the potential listing of new assets.
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And third, we will avoid questions we've answered in the past, if there are no updates.
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For example, we still don't plan to issue a dividend.
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So our first question is from [Sylvie P. and Jason M.].
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They asked about Coinbase Ventures.
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Can you talk a bit about our venture strategy and investment process?
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And maybe highlight 1 or 2 investments you're particularly excited about.
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Can you walk us through the capital allocation strategy and how these investments are captured in our financials?
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This is Emilie Choi, President and COO.
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So we're very pleased with the progress of Coinbase Ventures.
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We launched it in 2018, primarily with the mandate to support the growing crypto ecosystem, and we have become one of the most active corporate investors with more than 200 portfolio companies at this point.
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One of the questions was about the ones we're most excited about.
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And we look at it as thematically what is really interesting and popping and what teams and technologies are really interesting.
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So this includes everything from OpenSea, which we invested in their seed round in 2018 because we thought NFTs was going to be interesting; TaxBit and CoinTracker because taxes are so important in crypto; BlockFi for lending; Uniswap for decentralized exchanges; and then CoinSwitch because we think India and international are such important themes.
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And that's the way we think about the portfolio.
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We really look at interesting themes and then try to find the best teams and technologies in the space.
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And as I mentioned, we want to support the ecosystem because it helps support and grow those companies, and it also helps us get differentiated insights about what's popping.
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A secondary goal for us is about M&A pipeline and/or partnerships.
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So for example, Bison Trails is a company that we invested in with the Coinbase Ventures company.
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And it has now been acquired by us and forms the basis for Coinbase Cloud.
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Another example of this on the partnership side is that we invested in Compound before partnering to support their Day 1 listing for custody and trading.
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So we think there's a lot of different ways that we can work with these companies across the spectrum of partnership to acquisition.
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And then finally, we also do care about ROI, and we think that we'll be showing strong returns in coming quarters around that, but that's kind of a secondary goal for us.
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So the only thing I'll say on this is just that we've been spending a lot of time as of late working with protocols, Web3 infrastructure, DeFi, CeFi and, of course, NFTs and the Metaverse.
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And we think there's just an abundance of innovation in this space, and we want to keep doubling-down on those opportunities.
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Alesia, do you want to talk about the financial part of this?
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So first part of the question, how do we think about our capital allocation framework?
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And here, I would say there's no hard and fast rules.
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When we look at our overall balance sheet, we allocate capital to 4 different use cases: one is just to working capital; two is to product support and strategic initiatives, of which venture investments and strategic investments fall into that bucket; third is to any potential risks that we may have that we want to self-insure; and then lastly is the ability to be able to fund our business through our crypto winter.
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So this capital allocation is a constant discussion between Emilie, Brian and I about what is the best and highest use of our resources, but it's a very important area that we allocate capacity to.
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We hold our strategic investments on our balance sheet under other noncurrent assets, and you can see those in our financial disclosures, in our 10-Q and 10-K.
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The majority are equity investments, which we hold less than 10%.
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These are minority passive investments.
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We acquire at cost and test for impairments on a regular basis.
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They could be subsequently written up.
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This is very rare because the accounting rules for when we actually write up an investment are very precise.
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It has to be an identical transaction.
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And what we typically see in these investments is they have subsequent rounds that are not identical investments.
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And so you will see us typically carrying these at cost.
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There could be a significant delta between the fair market value of these investments and the carrying value reflected on our books.
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We look forward in the future to producing more disclosure and giving you more insights into this portfolio and may disclose fair market value at a future time.
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So next, we received several questions about NFTs.
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[Sylvie P. and Stephen B.] asked if we can talk about the recent announcement of the coin-based NFT platform and the overall strategy there.
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What are your plans for international expansion of the NFT platform and cross-platform usability.
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Devin Ryan from JMP Securities asked about the social component of NFTs, and Rich Repetto from Piper Sandler asked about the timing of when we will launch our marketplace.
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So we're very excited about NFTs.
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I think this is going to be a very large area for crypto in the future, and it already is today.
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I mean traditionally, Coinbase is focused on FTs, fungible tokens, and we're equally excited about NFTs.
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I think it could be as big or bigger.
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So let me just zoom out for a minute because, of course, we launched Coinbase NFT, or we announced that we'll be launching it, in the next quarter or 2. And so Coinbase is a multiproduct company.
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We have an effort internally we call Project 10%, which basically means that we put 10% of our resources towards these new initiatives that are kind of outside of our core competency.
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And you've seen things like Coinbase Wallet and Coinbase Commerce, the direct deposit feature that we announced.
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And this NFT all came out of that.
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So this NFT product that we've talked about is really just a small team's effort that started just a handful of months ago.
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So there was a question there about the social experience.
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And I think that's something that Coinbase can bring to the table here.
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We'd like to make Coinbase NFT a little bit more like Instagram as opposed to, say, an auction like eBay or something like that.
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And I think having people that you can follow, your favorite artists or creators, and having a feed of content that gets populated from those people you follow, that could be really powerful.
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And in addition, you can go in there and buy an NFT if you really like it and you'll kind of showcase in your own social profile.
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In addition to that, I think we can just make hopefully NFTs much easier to use.
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That's kind of a hallmark of what Coinbase tries to do out there: to bring more and more people into the crypto space.
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So just simple things like how do you connect your wallet.
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Hopefully, you won't have to install a Chrome extension.
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And if your identity and your payment methods and everything are just already connected from your Coinbase account, buying could be hopefully a one-click experience.
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So I think this is going to be a global phenomenon.
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We want to make sure our NFT platform is interoperable with every other platform out there.
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And hopefully, you will see something launched in the next couple of quarters here.
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Our next question comes from [Lee L.] who has noticed some Coinbase marketing efforts lately, including ads on YouTube and our recently announced partnership with the NBA.
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Can you walk us through the evolution of your marketing strategy and how that will continue to fuel the growth of your user base?
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And how do you measure effectiveness?
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So like many classic consumer Internet companies, we have built such a strong base of organic users.
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And frankly, historically, we used very little marketing spend prior to this year.
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And now I think we see a huge opportunity, and we're working to rightsize our budget and invest more in marketing.
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We think that the next concentric circle, to reach 1 billion crypto users globally, is possible here.
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And we want to use both organic as well as marketing efforts to help reach those users.
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And we're also looking to figure out what is authentic for Coinbase, how do we celebrate the unique aspects of Coinbase and the crypto community in those marketing efforts.
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So to that end, we recently hired our first CMO, Kate Rouch, who came from Facebook.
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And the first half of this year was focused largely on performance and growth marketing.
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And now what you're seeing is that we're expanding into the full funnel of marketing, including brand efforts such as Made in America in Q3, the multiyear partnership with the NBA as their exclusive cryptocurrency platform partner that you referenced.
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We think we have a very big opportunity to invest in brand, expand the channels that we reach.
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And that includes things like eSports to art to sports.
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And we're also very excited about investing in content, educating existing and new users about the possibilities of crypto.
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Just to add on a little bit, Emilie.
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What I would share with regards to how do we measure it, how do we think about it, marketing attribution and efficacy is a new muscle that we are building.
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As Emilie noted, our marketing spend is moving beyond performance marketing.
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So for performance marketing, we are pretty well attuned here.
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We look at our customer acquisition costs and LTV and have a targeted range of outcomes we'd like to see.
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But as we move into this new brand marketing for the first time, we are planning to test and learn and gather insights into the spend.
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And so you should expect to see us iterating and testing quite a bit, and we'll share updates if they are relevant.
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Our next question comes from [Hovik K. and Caleb O.] who saw the updates to our crypto investment policy.
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Can you share a bit more detail around that program for those who may not be as familiar?
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And what have purchases look like so far?
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And would Coinbase ever consider getting into mining?
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So yes, in August, we announced an update to our crypto investment policy.
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And big picture, our goal is to become a vast majority, if not 100%, crypto over time.
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We want to have all of our revenue and expenses being crypto-denominated as we think about the future.
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And so this is one step in that direction.
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The first was to invest $500 million of our cash and cash equivalents into crypto; and second, we're allocating 10% of quarterly net income into crypto investments.
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We are dollar cost averaging into a diverse portfolio over time.
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So you will not see a $500 million step-up in our investments as of Q3.
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But you should expect to see this balance continue to grow.
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We've invested upwards of $180 million year-to-date as measured at cost.
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And what's important to understand is that the crypto assets held are on our balance sheet at cost.
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They sit in a line item called crypto assets held.
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And you can view additional disclosures in our footnotes, which break these out for what is an investment versus what is crypto that we hold for operational purposes.
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You can also see in our footnote some fair value disclosure, and you can see that our crypto investment as of Q3 were $540 million of fair value on the balance sheet, and we disclosed the Bitcoin, Ethereum and other crypto assets breakout in those details.
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Our next question comes from [John P. and Aaron S.] who asked regulation is top of mind, can you give us a bit of insight into the regulatory state of affairs in the U.S. today?
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And how would you like to see the conversation evolve?
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And to add on, Owen Lau from Oppenheimer asked about how the digital asset policy proposal has been received by regulators.
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So regulation and our policy efforts are certainly top of mind for us as well.
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Whenever we see a rolling-up in crypto, we see increased interest from policymakers around the world.
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And so just kind of going back to our roots, Coinbase has always been a company that has tried to reach out, seek licensing, be the most regulated, the most trusted and also be really an adviser and a helpful voice for finance ministers and anybody around the world who's trying to think about this change that's happening to our global economy with crypto and how it can be really a source of strength and growth for the countries that embrace it while minimizing the small amount of bad activity that's out there.
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So we've continued that trend in recent months.
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We've met with a number of different regulators out there on a regular basis.
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I had a meeting last week with the Chairman of the SEC, Chair Gensler, which I think was very productive.
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There's a variety of different regulators in the United States.
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And this is part of what we talked about in our digital asset policy proposal is that it's kind of a jump ball right now at the federal level.
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There's CFTC, the SEC, the Treasury.
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And then, of course, we have state regulators as well with transmission licenses and lending licenses.
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This is just in the United States, one country of many, almost 100, where we have customers.
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And so it's kind of amazing that we, as Coinbase, we have 53 regulators in just one country, the United States.
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And so part of what we talked about in that proposal, the digital asset policy proposal, was maybe it's time to have 1 regulator at the federal level in the United States.
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It could be underneath one of the existing regulators.
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It doesn't have to be a completely new entity.
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But it'd be nice to consolidate it a bit and use that as a way to enable more innovation in this space because, of course, Coinbase is a pretty large company and, frankly, it's almost like better for us if there's more regulators because we can shoulder the burden of that as a larger company.
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But it's really harming the start-ups in the space more, and we really want the space to grow and have 1,000 companies to create economic growth and economic freedom here in the United States.
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As a financial hub and a world leader, I think it's important for the U.S. to embrace that.
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So that's part of what we proposed in the digital asset policy proposal.
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And I think with the tens of millions of Americans out there that are now using this asset class for all kinds of things, not just financial services and unique payments and things like that but also art and new forms of governance and identity and the Metaverse and Dow, then it's just so exciting that the millions of young people, the talented young people all over the U.S. are coming into this field.
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And so I think most of the regulators we've talked to around the world are realizing that this is going to become politically unpopular to ever tax crypto.
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But what we can all do and we all share these goals, both crypto companies and the regulators, is to come together and figure out how do we make this a safe industry.
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Let's have good consumer protection and disclosures but also help the industry grow because that's going to be the best thing for America and the American people long term.
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Our next question comes from [Jake A.] who had a financial strategy question.
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How should we think about compression in transaction fees driven by competition?
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And how do you plan on diversifying your revenue streams?
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So I will start with what Emilie shared before that we don't think of ourselves as primarily competing on fee today as we believe the services that we are providing are not commoditized.
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On the retail side, we compete on access to assets, which is why we focus on asset addition, we focus on products that allow our users to use their crypto, such as earning yields, through staking, transacting with Coinbase Card and, increasingly, the ability to more seamlessly interact with DeFi.
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So we're providing what we think of as a platform to a cryptoeconomy that is uniquely differentiated amongst a lot of our competitors.
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On the institutional side, we're competing against the product suite as well where we offer an institutional-grade Prime broker, deep liquidity.
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We offer secure storage to our custody solutions.
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So fee is not the primary aspect that we compete on.
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The only thing I would just want to share is that we haven't changed our fee structure in Q3 and haven't for some time.
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However, we do see the weighted average fee vary quarter-to-quarter depending on the mix of volume that we see on our platform.
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So we did see a decline in our retail transaction fees in Q3 as we saw more volume from our Pro platform than our consumer platform.
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And this is very common in periods of low volatility like we saw in July that we see high activity remain under our institutions and our Pro users and retail or the consumer trading subsides a little bit.
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And the opposite is true for periods of high volatility like we saw in September and we saw in October.
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And so we do think in the long term, though, zooming out a little, that we will see fee compression as more and more products will become commoditized in crypto.
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And so we've already begun focusing on diversifying our revenue, and you can see that progress through the growth of the line item in our subscription and services revenue.
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As we shared in our opening comments, what we're really excited about is to move into crypto entity utility phase.
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And so users are not coming to us just to transact and buy themselves crypto.
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They're also engaging with products like Staking, Earn, Borrow, Lend.
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And this is just the beginning, as we've announced, that we're launching new products and services over the coming quarters that we think will further diversify these revenues.
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So we think our job is to continue to build compelling product experiences, allow our users to engage in multiple ways beyond just transactions.
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And our goal is to become that primary financial account.
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And we think this will tamper down the revenue volatility and really diversify those revenue streams over time.
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Our next question is about product experience.
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So [Timothy S., Adam W. and Nicolas S.] have asked, when can we expect to see improvements in the in-app functionality around cost basis, profitability, et cetera, of a position?
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And similarly, what are you developing to help consumers come tax season?
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So I think I can take this one.
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So let me just talk generally about how we think about this, and then I'll answer your question directly.
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So just how do we think about taxes and cost basis in crypto?
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