The digital currency exchange and wallet service Coinbase, founded in 2012 and backed by Silicon Valley investors, recently told shareholders that it booked $1 billion in revenue in 2017. A new independent analysis says about 43 percent of that came in December when the price of bitcoin was surging, and the company’s revenue has plummeted since then.

“By no stretch of the imagination are they continuing that same trajectory,” says Jonathan Meiri, CEO of Superfly Insights, which analyzes data about consumer behavior. “There is a rise up in December. It’s not like it stayed on this plateau into January, February. It came crashing down.”

Superfly Insights’ Coinbase analysis is based on anonymized and aggregated data from user email receipts from about 25,000 users through 2017 and the first six weeks of 2018, Meiri says. The data were collected through productivity apps, personal finance apps, and expense management apps. Superfly Insights typically provides this type of data and analysis to its clients, which include hedge funds, banks, and venture capital firms. It also provides data and analysis to KPMG, Meiri told me, and “three out of the top five ride hailing companies in the world.” The data collection is stated in the terms of use for each app or service involved, Meiri says, and the tracking is compliant with Europe’s strict new privacy law, the General Data Protection Regulation.  

The 43 percent figure lines up with what investors told Recode in January: Coinbase was expected to do about $600 million in revenue over the course of the year, but “bitcoin’s run between Thanksgiving and Christmas boosted the company’s 2017 revenue to over $1 billion.” The distribution also makes sense given the extreme price gains bitcoin saw in December.

Superfly Insights’ numbers are plausible, says Nicolas Christin, a professor at Carnegie Mellon who has experience tracking the digital currency economy through his revenue analysis for the infamous dark web market Silk Road. However, it would be difficult to verify them using the Bitcoin blockchain, the somewhat public transaction ledger, because services like Coinbase pool their transactions, he said. Coinbase declined to comment.

It isn’t surprising that Coinbase’s fortunes rise and fall with the price of the cryptocurrency market’s flagship coin. The New York Times called Coinbase “the heart of the Bitcoin frenzy.” Coinbase makes money from transaction fees, which vary depending on where users are based and which currencies they are using. In December, the price of a bitcoin surged from around $11,000 up to over $19,000 and then back down to around $13,000. That month, Coinbase experienced repeated outages, which it attributed to “high traffic.” According to the Times, the service was getting twice as much traffic as its previous peak and eight times what it was in June.

Higher prices and greater trade volume meant higher transaction fees for Coinbase and a gross revenue that will be hard to beat unless bitcoin prices surge again in 2018. “It’s going to be hard unless the trajectory picks up,” Meiri said. “It’s not going to be that easy to reach that same number.” Of course, many cryptocurrency pundits, several of whom are involved with companies in the space, say there will be another price surge this year. “There is no reason why we couldn’t see bitcoin pushing $50,000 by December,” Thomas Glucksmann, head of marketing at cryptocurrency exchange Gatecoin, told CNBC earlier this month.

Coinbase is popularly regarded as a darling of the cryptocurrency movement, the company that figured out the classic picks and shovels business to Bitcoin’s gold rush. For a long time, it was difficult for the general public to get their hands on cryptocurrencies: they either had to figure out how to mine the currency or find someone willing to sell, maybe through a website like LocalBitcoins. Coinbase was the first mainstream service to make it easy to buy and store bitcoin and other digital currencies using bank transfers and credit cards. Its CEO Brian Armstrong gave interviews to media and showed up at conferences, in contrast to the shadowy, pseudonymous entrepreneurs of the Bitcoin 1.0 era. That and Coinbase’s Silicon Valley pedigree gave it legitimacy. By the end of 2017 — and despite faulty customer service and a scuffle with the IRS — Coinbase was riding high. A New York Times profile reported that the company was adding two new floors to its San Francisco office.

Coinbase’s competitors were nipping at its heels, however, and now there are multiple options for buying digital currencies. In 2018, Square and the stock trading app Robinhood introduced support for digital currencies. Both companies said they are not charging fees for digital currency transactions, which puts pressure on Coinbase.

Superfly Insights also found that the breakdown of Coinbase transactions changed dramatically over the year. At the beginning of 2017, Superfly Insights found that bitcoin purchases made up about 90 percent of Coinbase transactions and the average purchase was $483. A year later, bitcoin purchases make up less than half of all transactions on Coinbase, which also supports Ether, Litecoin, and, as of December 2017, Bitcoin Cash. Superfly Insights also found that users rarely sell their bitcoins, but when they do, the average sell order is almost three times higher than the average purchase: $1,393.

“I’m curious how Coinbase intends to build a recurring business considering the low revenue per user per month,” Meiri wrote in his analysis. “In layman’s terms, people come to Coinbase to buy Bitcoin, they continue to do so until they accumulate a certain amount and that’s about it. Considering how many times a day I check Coinbase, it is quite shocking how few fee-baring things I do inside.”

The Superfly Insights analysis shows how Coinbase’s revenue reflects the volatility and lopsidedness of the still-nascent digital currency world. The company may be able to boost its revenue through its new merchant platform, Coinbase Commerce, which enables vendors to accept digital currency payments — and if more merchants are using digital currencies, the trading price of those currencies may go up as well. That will depend on whether Coinbase can convince businesses to jump into the digital currency world. “They need to reach out to merchants, make the business case,” Meiri said in an email. “Most merchants are not that interested in the (relatively small) number of BTC or ETH holders.”

Coinbase has raised more than $225 million from investors. Its most recent funding round valued the company at $1.6 billion, in part due to its explosive growth.