A smartphone with displayed Coinbase logo and representation of cryptocurrencies are placed on a keyboard in this illustration taken, June 8, 2023. REUTERS/Dado Ruvic/Illustration

By Pritam Biswas

(Reuters) -Coinbase Global beat analysts' estimates for third-quarter profit on Thursday, as heightened volatility in digital assets boosted trading volumes at the cryptocurrency exchange, sending its shares up more than 3% after the bell.

Digital assets rallied in July as crypto-friendly policies by U.S. President Donald Trump attracted institutional investor interest, catapulting bitcoin, the world's largest cryptocurrency, to new peaks.

However, weak economic data in the following month sparked recession fears, triggering a sector-wide selloff as investors moved to liquidate riskier assets. Cryptocurrency exchanges often benefit from volatility in the sector as they earn more through transactions with investors seeking to hedge their portfolios.

Coinbase's transaction revenue rose to $1.05 billion during the quarter, from $572.5 million a year ago.

The company reported a net income of $432.6 million, or $1.50 per share, for the three months ended September 30, compared with $75.5 million, or 28 cents per share, a year earlier.

Analysts were expecting a profit of $1.06 per share, according to data compiled by LSEG.

Coinbase also closed its Deribit acquisition in the third quarter, bolstering its position in the derivatives market, an area where, according to Third Bridge analysts, it has historically lagged.

"Deribit is already the market leader in options. They had over 75% market share for options. Notably, this is all non U.S., and so there's paths to grow the market for options in the U.S.," finance chief Alesia Haas said on a conference call.

STABLECOIN - PART OF GROWTH STORY

Revenue from Coinbase's subscription and services unit, which includes businesses outside of trading, rose 34.3% to $746.7 million during the third quarter.

A portion of Coinbase's subscription and services revenue is derived from stablecoin holdings and related platform activities. Stablecoin revenue came in at $354.7 million, up from $246.9 million a year earlier.

"We are accelerating payments through stablecoin adoption, which we anticipate will continue given policy tailwinds, and ongoing adoption from financial institutions and corporates for payment and treasury needs," Coinbase said in a letter to shareholders.

Stablecoin has received optimism from traditional circles of finance and been at the forefront of legislation, with the GENIUS Act passed earlier in the year. The act aims to create a regulatory framework for stablecoins and promote broader adoption.

"Coinbase is cash-rich and growth-ready," said David Bartosiak, Stock Strategist at Zacks Investment Research.

"The company isn't just trading coins anymore, it's building the backbone of the new financial internet."

(Reporting by Pritam Biswas in Bengaluru; Editing by Shilpi Majumdar)