Coinbase Global Inc at Morgan Stanley US Financials, Payments & CRE Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : So what attracted you to the crypto industry after spending so many years in more traditional finance, more on the equity side? And maybe talk about your role and responsibilities today and how you're spending your time? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. JUNE 10, 2024 / 5:00PM, COIN.OQ - Coinbase Global Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Great. And when most people think about Coinbase, they often think about the direct-to-consumer business, but there's also a fast-growing and important institutional business under their hood as well. So maybe you can help contextualize this institutional business. How meaningful is this today?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Great. Over the last couple of years, the markets have digested some bad actors. We've seen some regulatory developments. We've been through a crypto winter. Now we're in, I guess, the bull market, it seems, introduction of ETFs, and the list goes on. So maybe we could talk a little bit about what's different this time around, particularly with the run-up that we've seen versus the last run-up. And to that end, what are you observing just in terms of institutional client behavior?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : And through the arc of your career, Greg, you've seen equities and other asset classes go through transformations, transitions, electronify. I guess with that perspective, how do you see crypto market structure evolving as you look out? What lessons do we take away from these other asset classes? How different might the market structure look in crypto sphere in say 10 years' time? And then to that end, what are some of the implications of the FIT21 bill, which recently passed through the House on the market structure if it does become law?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Great. Why don't we dig into the Coinbase Prime offering? It wasn't that long ago that Coinbase primarily offered custody capabilities for institutions, but with the Prime platform, you've broadened out the offering. So maybe you could talk a little bit about the capabilities that the platform offers today, the journey that you have been on, and the challenges that you faced along the way, how you overcame them.

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : And where would you say we are along that journey in terms of building out these capabilities -- many of the capabilities that the traditional financial world offers? What would you think the roadmap is as you look out?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Maybe you can give us a flavor of the types of institutions that are customers today, how penetrated are you, and where are you having the most traction versus the least traction as you think about building out more institutional customers.

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Okay. Now as part of the Prime offering, you also provide lending and margin to institutions as well. Can you just talk about the sort of Prime financing product set? What does that look like? And how are you using the balance sheet of Coinbase today to support these offerings and how do you see demand evolving?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Great. Why don't we talk about the custody offering that you have and the traction that you're seeing? The new Bitcoin ETF has been a tailwind there, I believe. Can you just talk about the opportunities that you see for custody, how that's evolving, particularly given the passage and then subsequent veto of the SAB 121 repeal?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Just the SAB 121 --

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : And just on the ETFs, any sense on timing around the ETH ETFs as well as the options on the Bitcoin?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Okay. Fair enough. So you have a built out spot-trading platform that's up and running, but you also have launching derivatives as well. Why don't we talk about that that expands the addressable market? So maybe just talk about the derivative product set as it exists today, how it's likely to evolve as you look out over the next couple of years, particularly with the FCM license approval?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : And as you're making this big push into the derivative space in the US and overseas, I guess, how do you think about the differentiation in your offering and platform versus other, say, the CME in the US or some of the other folks that are overseas? You mentioned perpetual derivatives. Why perpetual versus limited life, which is what we see, let's say, the CME? Just how do you think about the differences there?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Any difference in leverage between the two?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Got it. Aladdin, you had mentioned that earlier. Maybe you could just dig in a little bit there? About two years ago, you partnered with them to provide Prime services to a lot of institutional client base. Maybe you could just remind us how this offering works, how it has evolved, how it's contributing today, how you expect that to broaden out. And then, just more broadly on institutional partnerships, how else are you thinking about that?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Any thoughts on other potential partnerships over time on the institutional?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : No. Okay. Maybe just coming back to the ETF side, I think the spot Ethereum ETF approval caught a lot of people by surprise. Did it catch you guys by surprise? And just how are you thinking about what this means for Coinbase and other market participants?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Interesting. Okay. Stablecoins. Can we just talk about that for a moment? Just how is that part of the institutional offering today? How meaningful is this? And how do you see the role for Stablecoins evolving?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Maybe we could shift back to some of the engagement commentary I think you were alluding to earlier. I think there was an interesting stat on the last conference call, I think, about 40% of institutional customers engaging with three or more products. How many products are there on the institutional side? Which products are you seeing more engagement and penetration versus where it's released? And what's the typical journey?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Any particular area where you're more penetrated against the custody?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Great. And just as we wrap up here, it's been a great year for crypto and also for Coinbase. I guess as you head into the back half of '24, what are some of the biggest priorities for the institutional business?

Question: Mike Cyprys - Morgan Stanley & Co. LLC - Analyst : Great. Why don't we end it there? Well, thank you very much, Greg. Appreciate you taking the time.