Former Twitter CEO Jack Dorsey’s digital payments company Block Inc. saw its year-over-year (YoY) profit jump 29% to $1.47 billion in the second quarter, though its Bitcoin business collapsed due to reduced customer demand and a decline in Bitcoin (BTC) prices.
The financial services company mainly generates Bitcoin revenue by offering BTC trading services through its digital payment application Cash App.
Block Inc. noted that the company generated $1.79 billion in Bitcoin revenue in the quarter, a 34% year-over-year decline, while Bitcoin’s gross profit was just $41 million, suggesting it could be an expensive venture to run Bitcoin provide services to its customers.
Block Inc. said the Bitcoin revenue decline was attributed to “wider uncertainty” in crypto assets, stating:
“The year-over-year decline in Bitcoin revenue and gross profit was primarily driven by a decline in consumer demand and the price of bitcoin, in part related to broader uncertainty surrounding crypto assets, which more than offset the benefit of price volatility. of Bitcoin during the quarter.”
Block Inc. stressed, however, that BTC’s decline in earnings does not reflect the company’s broader performance. It also noted that BTC gains are likely to fluctuate over time due to “changes in customer demand or the market price of Bitcoin.”
The company also noted that it acknowledged a $36 million impairment loss on its BTC shares, but this is likely just a loss on paper.
Under US accounting procedures, crypto is classified as an intangible asset on the balance sheet and companies must report a loss when the asset’s price falls below cost, even if a gain or loss has been realized from a sale in the given quarter.
The company noted that as of June 30, 2022, the fair value of its investment in Bitcoin is $160 million based on market prices.
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However, investors seem unimpressed with Block Inc’s performance. in the second quarter, as the company’s stock SQ in after-hours trading fell 7.42% to $83 at the time of writing.
Bloomberg suggested this was due to the company reporting lower-than-expected transaction volume of $52.5 billion, as opposed to the estimated $53.47 billion.
Bitcoin off the block
Dorsey, the avid Bitcoin maxi, has been relatively quiet about his plans for digital gold since announcing in June that Block Inc. bypassed the Web3 model to build the Bitcoin blockchain focused Web5 project.
Web5 is essentially a decentralized web platform, or DWP, that allows developers to create decentralized web apps through DIDs and decentralized nodes, which also have a monetary network built around BTC, and no smart contract-backed tokenization.
— jack (@jack) June 16, 2022