Coinbase’s $2.9 billion investment

In one week, Coinbase orchestrated the largest acquisition in cryptocurrency history, revealed that they had been quietly hoarding bitcoin, helped solve a murder case, and suffered heavy losses due to customer losses. Coinbase is facing scrutiny for its $45 million in losses — and this is happening as their quarterly revenues are falling.

Are these calculated risks for a company eyeing a trillion-dollar future, or a desperate strategy for an exchange in dire straits?

CEO Brian Armstrong appears to be building something far more ambitious than your average exchange — an entity that could transform Coinbase from a trading platform for retail investors into the financial infrastructure that underpins the global cryptocurrency market.

But to understand what’s really happening, we need to look beyond the headlines and examine the nature of the larger game.

The Battle of Derivatives

When Coinbase announced it was acquiring Deribit for $2.9 billion ($700 million in cash plus 11 million shares of Coinbase stock), most analysis focused on the price.

The deal immediately brings Coinbase:

• Currently $30 billion in open interest

• Over $1 trillion in trading volume last year

• The leading platform for Bitcoin and Ethereum options

Coinbase Vice President of Institutional Products Greg Tusar noted, “We believe crypto options are poised for significant expansion, similar to the equity options boom of the 1990s. This acquisition positions Coinbase to lead that growth.”

Just a week ago, rival exchange Kraken completed its $1.5 billion acquisition of futures trading platform NinjaTrader. Similar moves by both exchanges signal a widespread industry recognition that derivatives — not spot trading — will be the next major battleground.

By acquiring Deribit, which operates out of the U.S., Coinbase immediately gains access to the lucrative derivatives trading market, while potentially positioning itself for future regulatory developments that open up those markets to the U.S. market.

Jeff Park, head of Bitwise Alpha Strategy, commented: "This may be the most 'value' deal I've ever seen in the cryptocurrency space," calling the acquisition "a feat for Coinbase."

Bitwise Chief Investment Officer Matt Hougan went further and said: "Coinbase will one day be a $1 trillion company."

Considering Coinbase's current market value of approximately $50 billion, this represents an ambitious twenty-fold increase.

Profits, security and mixed signals

While the Deribit acquisition dominated the headlines, Coinbase’s quarterly earnings revealed a more complex picture of the company groping in turmoil.

Total revenue fell 10% quarter-on-quarter to $2 billion, missing industry expectations as market trading activity slowed. More strikingly, net income plunged 95% from a company-record $1.29 billion in the fourth quarter to $66 million in the first quarter.

The sharp decline was mainly due to a $596 million paper loss on the crypto assets held by Coinbase due to falling market prices. Trading revenue fell 18.9% to $1.26 billion, and trading volume fell 10.5% to $393 billion.

However, beneath these surface data, a more subtle story emerges. Subscription and service revenue actually increased 8.9% to $698.1 million, with stablecoin revenue performing particularly well. This growing revenue diversification suggests that Coinbase is steadily reducing its reliance on volatile trading fees.

Meanwhile, Coinbase revealed that it had purchased another $153 million worth of crypto assets, mainly Bitcoin, bringing its long-term portfolio to $1.3 billion - about 25% of its net cash.

CFO Alesia Haas emphasized on the earnings call: "It needs to be clear that we are an operating company. But we do invest with the industry."

Previously, it was reported that Coinbase had repeatedly considered adopting a Bitcoin-based fund management strategy similar to that proposed by Michael Saylor's Strategy, but ultimately decided not to do so.

“We did consider several times over the last 12 years whether to put 80% of our balance sheet in cryptocurrencies - specifically Bitcoin," Armstrong said in an interview with Bloomberg.

Unlike companies that explicitly tie their corporate identity to their Bitcoin holdings, Coinbase has taken a more cautious approach, allocating operating profits back to crypto assets as a capital recycling strategy consistent with the industry rather than a balance sheet transformation.

The dark side of growth

As Coinbase expands its institutional products, it continues to face significant security challenges that threaten user trust.

On May 2, on-chain sleuth ZachXBT discovered that in just seven days, Coinbase users lost approximately $45 million in funds through social engineering scams. Even more alarming, he claimed that Coinbase users had lost “nine figures” of money to similar scams over the past few months, describing it as a problem unique to Coinbase among major exchanges.

These claims suggest that the total amount of money Coinbase users lose to social engineering scams could be as high as $330 million per year, reflecting a sophisticated attack strategy against cryptocurrency holders.

However, Coinbase has also used its security expertise to assist law enforcement in solving major crimes. Chief Legal Officer Paul Grewal revealed on May 6 that the company’s blockchain forensics team played a key role in a criminal investigation in New York City that ultimately led to multiple murder convictions.

The case involved a series of violent robberies in which victims — often from the LGBTQ+ community — were drugged outside Manhattan bars and clubs, had their phones stolen, and had their financial and crypto accounts emptied. Several victims were found dead with substances laced with fentanyl, and more than $250,000 was stolen from multiple platforms, including Coinbase.

Grewal explained: "Our blockchain analysis linked multiple wallets to the same criminal group, helped recover evidence in traditional financial and cryptocurrency channels, and supported a conviction for 24 charges, including second-degree murder." He added: "This case shows that cryptocurrency is not a risk - it provides a chain of evidence to bring violent criminals to justice."

This duality - both a target for scammers and a valuable tool for law enforcement - highlights the complex position Coinbase finds itself in as it scales its operations.

Institutional Gaming

Combining these developments, the strategic picture for Coinbase becomes clearer.

The acquisition of Deribit is the latest in a series of strategic acquisitions by Coinbase that systematically expand its institutional capabilities:

• The acquisition of Xapo in 2019, leading to Coinbase Custody

• The acquisition of Tagomi in 2020, leading to Coinbase Prime

• The acquisition of FairX in 2022, leading to Coinbase Derivatives Exchange

• The acquisition of One River Digital in 2023, leading to Coinbase Asset Management

• The acquisition of Deribit in 2025, making Coinbase the world's leading crypto derivatives platform

This institutional infrastructure push is consistent with reports that Coinbase is considering applying for a U.S. banking charter, potentially following in the footsteps of Circle and BitGo to bridge the gap between crypto and traditional finance with formal banking credentials.

The goal appears to be to build a platform that gives professional traders access to spot, futures, perpetual futures, and options trading in a seamless, capital-efficient environment. This would make Coinbase more than just a retail on-ramp for crypto, but a pillar of institutional crypto trading around the world.

Meanwhile, Coinbase’s cautious approach to holding crypto on its balance sheet suggests that the company is balancing its crypto-native identity with its responsibilities as a public company.

Our View

In previous crypto cycles, when crypto enthusiasts talked about “institutional adoption,” they typically envisioned BlackRock and Goldman Sachs buying Bitcoin for their balance sheets or offering crypto products to clients. While the advent of Bitcoin ETFs partially fulfilled that vision, a different type of institutional infrastructure is quietly forming.

Coinbase’s acquisition of Deribit marks a key moment in this evolution. Rather than traditional institutions fully embracing crypto, crypto-native companies are transforming into institutions.

Coinbase’s transformation from outsider to insider was cemented by reports that it was actively considering applying for a U.S. banking charter—a stunning reversal for a company that couldn’t even maintain basic banking relationships for many of its executives just a few years ago.

This creates an interesting dynamic. Coinbase began as a retail-focused exchange, simplifying Bitcoin purchases for the average user. Today, it’s metamorphosing into an entity that resembles a traditional financial giant—with prime brokerage operations, custody, asset management, and now advanced derivatives trading.

Unlike traditional financial institutions, however, Coinbase has retained its crypto-native DNA. It holds Bitcoin on its balance sheet, provides blockchain forensics to law enforcement, and is committed to cryptocurrency’s potential to reshape finance.

This hybrid identity could become Coinbase’s greatest strength or its most significant weakness. Traditional financial firms are subject to decades of regulation that both constrains and protects them. Crypto-native institutions are creating new models without much precedent to follow or much safeguard against unknown risks.

The future of cryptocurrency may depend on whether companies like Coinbase can successfully bridge this gap—developing institutional-grade security and compliance while maintaining cryptocurrency’s potential for innovation. Their success or failure will determine whether cryptocurrency can fulfill its promise to transform finance or remain forever on the fringes.