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We want to make sure our NFT platform is interoperable with every other platform out there. | neutral |
And hopefully, you will see something launched in the next couple of quarters here. | neutral |
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. | neutral |
Can you walk us through the evolution of your marketing strategy and how that will continue to fuel the growth of your user base? | neutral |
And how do you measure effectiveness? | neutral |
So like many classic consumer Internet companies, we have built such a strong base of organic users. | positive |
And frankly, historically, we used very little marketing spend prior to this year. | neutral |
And now I think we see a huge opportunity, and we're working to rightsize our budget and invest more in marketing. | neutral |
We think that the next concentric circle, to reach 1 billion crypto users globally, is possible here. | neutral |
And we want to use both organic as well as marketing efforts to help reach those users. | neutral |
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. | neutral |
So to that end, we recently hired our first CMO, Kate Rouch, who came from Facebook. | positive |
And the first half of this year was focused largely on performance and growth marketing. | neutral |
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. | neutral |
We think we have a very big opportunity to invest in brand, expand the channels that we reach. | positive |
And that includes things like eSports to art to sports. | neutral |
And we're also very excited about investing in content, educating existing and new users about the possibilities of crypto. | positive |
Just to add on a little bit, Emilie. | neutral |
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. | neutral |
As Emilie noted, our marketing spend is moving beyond performance marketing. | positive |
So for performance marketing, we are pretty well attuned here. | positive |
We look at our customer acquisition costs and LTV and have a targeted range of outcomes we'd like to see. | neutral |
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. | neutral |
And so you should expect to see us iterating and testing quite a bit, and we'll share updates if they are relevant. | neutral |
Our next question comes from [Hovik K. and Caleb O.] who saw the updates to our crypto investment policy. | neutral |
Can you share a bit more detail around that program for those who may not be as familiar? | neutral |
And what have purchases look like so far? | neutral |
And would Coinbase ever consider getting into mining? | neutral |
So yes, in August, we announced an update to our crypto investment policy. | neutral |
And big picture, our goal is to become a vast majority, if not 100%, crypto over time. | neutral |
We want to have all of our revenue and expenses being crypto-denominated as we think about the future. | neutral |
And so this is one step in that direction. | neutral |
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. | neutral |
We are dollar cost averaging into a diverse portfolio over time. | neutral |
So you will not see a $500 million step-up in our investments as of Q3. | neutral |
But you should expect to see this balance continue to grow. | neutral |
We've invested upwards of $180 million year-to-date as measured at cost. | neutral |
And what's important to understand is that the crypto assets held are on our balance sheet at cost. | neutral |
They sit in a line item called crypto assets held. | neutral |
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. | neutral |
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. | neutral |
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? | neutral |
And how would you like to see the conversation evolve? | neutral |
And to add on, Owen Lau from Oppenheimer asked about how the digital asset policy proposal has been received by regulators. | neutral |
So regulation and our policy efforts are certainly top of mind for us as well. | neutral |
Whenever we see a rolling-up in crypto, we see increased interest from policymakers around the world. | neutral |
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. | neutral |
So we've continued that trend in recent months. | neutral |
We've met with a number of different regulators out there on a regular basis. | neutral |
I had a meeting last week with the Chairman of the SEC, Chair Gensler, which I think was very productive. | positive |
There's a variety of different regulators in the United States. | neutral |
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. | negative |
There's CFTC, the SEC, the Treasury. | neutral |
And then, of course, we have state regulators as well with transmission licenses and lending licenses. | neutral |
This is just in the United States, one country of many, almost 100, where we have customers. | negative |
And so it's kind of amazing that we, as Coinbase, we have 53 regulators in just one country, the United States. | negative |
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. | neutral |
It could be underneath one of the existing regulators. | neutral |
It doesn't have to be a completely new entity. | neutral |
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. | neutral |
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. | negative |
As a financial hub and a world leader, I think it's important for the U.S. to embrace that. | neutral |
So that's part of what we proposed in the digital asset policy proposal. | neutral |
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. | positive |
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. | positive |
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. | neutral |
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. | neutral |
Our next question comes from [Jake A.] who had a financial strategy question. | neutral |
How should we think about compression in transaction fees driven by competition? | negative |
And how do you plan on diversifying your revenue streams? | neutral |
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. | neutral |
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. | positive |
So we're providing what we think of as a platform to a cryptoeconomy that is uniquely differentiated amongst a lot of our competitors. | positive |
On the institutional side, we're competing against the product suite as well where we offer an institutional-grade Prime broker, deep liquidity. | positive |
We offer secure storage to our custody solutions. | neutral |
So fee is not the primary aspect that we compete on. | neutral |
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. | neutral |
However, we do see the weighted average fee vary quarter-to-quarter depending on the mix of volume that we see on our platform. | negative |
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. | negative |
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. | neutral |
And the opposite is true for periods of high volatility like we saw in September and we saw in October. | neutral |
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. | negative |
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. | neutral |
As we shared in our opening comments, what we're really excited about is to move into crypto entity utility phase. | positive |
And so users are not coming to us just to transact and buy themselves crypto. | neutral |
They're also engaging with products like Staking, Earn, Borrow, Lend. | positive |
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. | positive |
So we think our job is to continue to build compelling product experiences, allow our users to engage in multiple ways beyond just transactions. | neutral |
And our goal is to become that primary financial account. | neutral |
And we think this will tamper down the revenue volatility and really diversify those revenue streams over time. | positive |
Our next question is about product experience. | neutral |
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? | negative |
And similarly, what are you developing to help consumers come tax season? | neutral |
So I think I can take this one. | neutral |
So let me just talk generally about how we think about this, and then I'll answer your question directly. | neutral |
So just how do we think about taxes and cost basis in crypto? | neutral |
Well, we want to make it easier and easier for every customer of ours out there to calculate this so that "it just works." And you don't have to -- if you bought some crypto and went up in value and now you want to spend it on an NFT or with Coinbase commerce, that all just works. | neutral |
So we produce one simple form for you at the end of the year and government's copy, you get a copy, just like any other kind of financial service firm out there. | neutral |
So that's going to be great for crypto. | positive |
And I think the good news is that we're getting very close to having that ready. | positive |