Coinbase knocked Q1 earnings out of the park—now comes the hard part

Coinbase did it again on Thursday, announcing earnings results that far surpassed analyst expectations, which pushed its share price up nearly 9% to around $229—a far cry from when it traded for $50 just a year ago. It’s been a remarkable turnaround, and the market clearly likes what it sees. But now comes a bigger challenge for Coinbase: The company has to prove it can keep this up.

Crypto has always been a highly cyclical industry, marked by periods of exuberant “to the moon” bouts of trading, followed by long, painful Crypto Winters. For Coinbase, this has posed a strategic challenge the company has acknowledged for years but never really solved: How can it diversify revenue streams so it doesn’t have to rely almost entirely on the feast-or-famine business of retail trading fees?

When Coinbase also beat expectations the previous quarter, I expressed doubt this represented the start of a new phase for the company. I pointed out that, while it was showing newfound discipline in controlling costs, Coinbase still felt like a one-trick pony and that it had yet to point to meaningful areas of growth beyond the sugar-high of boom-time trading fees.

This time, I’m starting to buy Coinbase‘s narrative that its subscription and services business is showing real traction. In the past, this segment has been dominated by the windfall revenue Coinbase obtained from its claim to part of the interest generated by Circle’s USDC stablecoin reserves—revenue that felt fragile in light of Circle’s past stumbles and the high-interest-rate environment, which have made stablecoins less attractive.

Coinbase’s latest earnings, however, showed USDC revenue to be growing, which indicates the business may indeed be durable. Better yet for the company, its intriguing layer-2 blockchain called Base is not only growing like gangbusters but starting to pull in real revenue, too—not enough, for now, to make a big difference to the company’s overall fortune, but enough to show this a real business with huge potential. In the best possible world, revenue from Base would supplement its core trading business in the same way Apple’s App Store commissions provide a boost to its primary business of selling iPhones.

The caution here, of course, is that Base revenue is likely to prove highly cyclical as well. But along with the robust growth in Coinbase’s overseas revenue and the modest-but-steady income from its custody service, it all adds up. Coinbase is looking more and more like a crypto firm built for all seasons. Let’s see if they keep it up.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

This story was originally featured on Fortune.com