On the cusp of its initial public offering, North America’s biggest cryptocurrency exchange Coinbase has released projections of its performance for this past quarter. They look good.

In a press release issued earlier this week, the company stated that it was expecting revenues of $1.8 billion for the first quarter of 2021, a number that is roughly 57% greater than all of its reported revenue for 2020. It also expects net income of $730 million to $800 million, up from its annual income of $343 million in 2020.

As record trading prices for Bitcoin and cryptocurrencies made news at the beginning of this year, users flocked to Coinbase. The company said it had 56 million verified users and 6.1 million monthly transacting users (MTUs), or the number of people who transact with one or more of assets on the cryptocurrency exchange in less than a month, at the end of March. Those figures compare favorably with 43 million verified users and 2.8 million MTUs at the end of last year. Coinbase’s main source of revenues is transaction fees generated from trading.   

A Growth Powered by Crypto Price Cycles

While explaining its projections, Coinbase referenced crypto’s boom-and-bust cycles that have occurred four times since 2010. During each of these cycles, cryptocurrency prices have surged in a short period of time on the back of increased chatter and expectations about the asset’s prospects. Subsequent criticism and scandal has crashed the same prices. The last such price cycle occurred in 2017, when Bitcoin price reached a high of $20,000 in less than a year before crashing to a multi-year low.

As one of the world’s most prominent crypto exchanges, Coinbase has profited off these cycles. “We believe we entered the fourth price cycle in late 2020. We do not know where we are, though, in the current price cycle, but we can already see that we expect to reach a peak materially higher than the last all-time high,” Coinbase chief financial officer, Alesia Haas, said during a conference call that accompanied the release. She said the price cycles will bring more people into the crypto-economy and to Coinbase’s platform.

These users powered trading volume worth $335 billion in the first quarter alone, up from the total figure of $193 billion for 2020. Institutional investors, who are increasingly making forays into risky assets during a time of low interest rates, were responsible for an inflow of $122 billion worth of funds into the exchange at the end of this quarter. It had $45 billion from the same set of investors on its books in 2020.

The flipside to Coinbase’s soaring fortunes as a result of this price cycle is that it is also susceptible to a quick drawdown. The company has witnessed massive drops in trading volumes and revenues in the past as prices crashed.

During the call, Haas said that the company plans to use periods of profitability to fund business growth during crypto winters. This year, Coinbase will spend upwards of $1 billion on operational expenses and “meaningfully increase” its outlay for sales and marketing to between 12% to 15% of its total budget in order to attract more users to its platform.