CRYPTO MOVERS AND PRICES
Crypto was mixed this morning with prices seemingly consolidating. Spot volumes are only 55% of the 30-day average.
CRYPTO STORY OF THE DAY
This week Square, best known for its mobile payments app, reported earnings that, as usual, included a breakout of bitcoin (BTC) activity on their cash app. While volumes are growing impressively, Square reported these figures with an unusual accounting method.
The company announced on Tuesday that Q2 2020, “revenue from BTC activity” was $875 million, 6 times larger than it had been in Q2 2019. Square began offering buying and selling of BTC through its Cash App in late 2017. The gains are made more impressive as they came in a period that actually saw declining crypto volumes. The company noted, profit of $17 million from their crypto trading implying a 1.9% margin on activity.
It’s great that Square is successfully introducing BTC to a growing amount of users. We’re surprised, however, that Square's method of reporting “BTC revenue” has been approved by their auditors. The increase in BTC revenue QoQ was $750 million and the entire company's increase in net revenue was only $749 million.
What Square is reporting isn’t what is traditionally captured as revenue in financial services. It’s actually the total notional BTC purchased or sold on the Cash App platform.
Consider if traditional capital markets firms reported revenues in such a fashion. Large U.S. money centers, like JP Morgan and Citibank, process trillions of dollars in transactions amid various financial products, foreign exchange, bank transfers etc. Were they to report revenues the way Square has with their BTC activity, they would be reporting figures in the multi-trillion-dollar range (JP Morgan, for example, reported ~ $115 billion in revenue in 2019). In fact, what Square reports as income, the spread they receive on transactions, would usually be referred to as revenue in traditional financial services, which was $17 million. The fact that Square remains an unprofitable company and that they have such unusually accounted revenue is at the very least curious.