Coinbase (COIN -2.13%) was founded in June 2012 with the sole purpose of facilitating the buying and selling of Bitcoin. But over the next 12 years, the digital asset brokerage and exchange operator has expanded into a broader business by offering more services.

After a disappointing 2022, shares have been on an absolute tear, soaring 697% in the past two years. As of this writing on Dec. 19, the company's market cap sits at $70 billion.

But can Coinbase continue its upward trajectory, increase 14-fold in value, and become the first trillion-dollar cryptocurrency stock by 2040?

Betting on the entire crypto industry

Thanks to its first-mover advantage, powerful network effects, and expanding financial ecosystem, Bitcoin deservedly gets a lot of the attention among investors. Smaller blockchain projects, like Ethereum, XRP, and Solana, are also potentially on the radars of those looking to put money to work in this industry.

Here's where Coinbase provides a unique opportunity. I view the business as essentially being a bet on the growth of the entire cryptocurrency market because of the different ways it's exposed to the industry.

Most people are familiar with the brokerage and exchange segment that lets individuals and institutions buy and sell hundreds of different cryptocurrencies. This activity represented 51% of net revenue in Q3 (ended Sept. 30), down from a much higher 88% share in the same period three years ago.

In recent years, the leadership team has focused more on diversifying the business model to depend less on volatile trading volume and lean more into predictable subscriptions and services. This segment includes things like stablecoin revenue, staking rewards, and custody solutions. The hope is that as cryptocurrencies evolve from a tool mainly used for financial speculation to something that has day-to-day utility for people, Coinbase can rely less on volatile trading revenue.

Coinbase also makes direct investments into new companies or technologies in the crypto space. As of Sept. 30, these strategic investments were valued at $359 million. While up-and-coming crypto start-ups could possibly be viewed as a threat to Coinbase's competitive position, the fact that this company has equity ownership in many of these businesses gives it financial upside should they succeed.

Crypto over the long term

Coinbase's ascent over the past decade is admirable. But its ultimate success rests not only on the cryptocurrency industry thriving over the long term, but on the company's ability to capture this opportunity.

If the total crypto market continues rising in value and in number of blockchain projects, then it's not hard to believe that Coinbase could benefit. It has unrivaled exposure to the entire asset class.

When crypto prices go up, there's generally more interest among the investment community to trade these digital assets. This can result in a growing user and revenue base for the business.

What's more, this provides Coinbase with the resources to continue innovating. Recent developments with the Base Layer-2 solution or the USDC stablecoin demonstrate the company's ability to keep finding new areas for expansion.

Temper expectations

The cryptocurrency market is once again winning over investors thanks to rising asset prices and a risk-on mentality. However, I don't think anyone has any idea how the industry will look a decade or two from now. I believe the vast majority of tokens will end up worthless, as they solve no real-world problems and provide no utility.

Consequently, I'm not as confident in the overall industry's long-term potential as crypto bulls might be. There are still major regulatory and technical hurdles that need to be cleared. Plus, cryptocurrencies need to be significantly better than the current financial system, in terms of costs, speed, security, and convenience, for example, for most people to want to make the switch. I'm not sure this will ever be the case.

I don't believe Coinbase will ever get to the trillion-dollar mark.