Since its advent a little more than a decade ago, the cryptocurrency space has been volatile. Strong bull runs give way to what are known as "crypto winters." But the ice has undeniably melted in recent months, with the overall market cap of the cryptocurrency space surging to more than $2.3 trillion in 2024.

As a top exchange for trading cryptocurrencies, Coinbase Global (COIN -2.45%) has been an obvious beneficiary. Shares are up more than 200% in the past year, and up more than 500% since the start of 2023.

Investors are likely aware of its recent stock performance. But here's something investors might not know about Coinbase: Its second biggest business is booming right now. The reason they might not know is because it's happening quietly beneath the surface and nobody is talking about it. Here's what investors need to know.

Why this stablecoin matters for Coinbase

The values for normal cryptocurrencies go up and down. But there's an entirely different class of cryptocurrency called stablecoins. The values of stablecoins are intended to stay pegged to another asset, often the U.S. dollar. USD Coin (USDC -0.01%) is one of these.

There are different methods of creating a stablecoin, and some have failed. But the best way seems to be how Tether and USD Coin do it. These stablecoins receive dollars from customers and issue corresponding coins. If people ever want to cash out, the stablecoin company theoretically has reserves to give back to customers. This is what keeps the system stable.

Stablecoins make money by generating income on the cash deposits. Therefore, it matters how much cash they have. To approximate how much cash a stablecoin has, one can simply look at the market cap value of the coin. In Tether's case, it's the largest, with a market cap of over $100 billion.

USD Coin is a stablecoin that was co-created by Coinbase. Because of this, Coinbase earns revenue from it. And it's a surprisingly big business. In 2023, the company generated nearly $700 million in stablecoin revenue. That was 24% of its total revenue and its second biggest revenue generator.

In July 2022, the market cap for USD Coin peaked at over $55 billion. But over the subsequent one-and-a-half years, the market cap plunged by more than 50%. Yet even with the market cap plunging, Coinbase's stablecoin revenue was up 183% year over year in 2023, thanks to higher interest rates.

The good news for Coinbase investors now is that there's been a resurgence in investor interest in USD Coin. Since November 2023, the market cap for USD Coin is up about 36%, according to CoinMarketCap.

This means that there are suddenly billions of extra dollars at work generating revenue for Coinbase. This could have a surprisingly positive effect on the company in 2024 if the current trend continues.

What can investors expect from Coinbase?

As I've explained, there's increasing reason for optimism regarding Coinbase's stablecoin revenue, which is its second largest revenue source. However, there's strong reason to be upbeat about its largest source of revenue as well: Transaction fees.

Coinbase generates revenue when people buy or sell cryptocurrencies on its platform. For the year, transaction revenue was down in 2023. However, it perked up in the final quarter of the year, growing 64% year over year and growing 84% sequentially.

When it reported financial results, Coinbase's management noted that transaction revenue growth was still trending in the right direction. Since then, the cryptocurrency space has stayed hot, giving optimism that its results in this area will be strong.

To be clear, investing in the cryptocurrency space isn't for the faint of heart. Several of Coinbase's competitors have gone out of business. And ongoing regulatory uncertainty makes it hard to project what this space will look like even a couple of years from now. Therefore, investors should use caution.

That said, Coinbase is expected to report quarterly financial results next month. With transaction revenue surging and the market cap of USD Coin rising steadily, I wouldn't be surprised if it delivered strong financial results for investors.