Former Twitter CEO Jack Dorsey’s digital payments firm Block Inc. saw its year-on-year (YoY) profits soar 29% to $1.47 billion in Q2, though its Bitcoin business slumped on decreased customer demand and a fall in Bitcoin (BTC) prices.
The financial services firm primarily generates Bitcoin revenue by providing BTC trading services via its digital payments application Cash App.
Block Inc. noted the business generated $1.79 billion of Bitcoin revenue in the quarter, down 34% YoY, while Bitcoin gross profit was only $41 million, which suggests it may be a high-cost venture to provide Bitcoin services to its customers.
Block Inc. said the fall in Bitcoin revenue was attributed to “broader uncertainty” in crypto assets, stating:
“The year-over-year decrease in Bitcoin revenue and gross profit was driven primarily by a decline in consumer demand and the price of bitcoin, related in part to broader uncertainty around crypto assets, which more than offset the benefit of volatility in the price of Bitcoin during the quarter.”
However, Block Inc. emphasized that the BTC profit slump doesn’t reflect the broader performance of the business. It also noted that BTC profits will likely fluctuate over time as a result of “changes in customer demand or the market price of Bitcoin.”
The company also noted that it recognized a $36 million impairment loss on its BTC holdings, however this is likely just a loss on paper.
Under U.S. accounting procedures, crypto is classified as an intangible asset on balance sheets and companies must report a loss when the price of the asset drops below its cost basis, even if a gain or loss has been realized through a sale during 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.
Investors appear un-impressed with Block Inc.’s performance in Q2 however, as the firm’s stock SQ has dipped by 7.42% in after-hours trading to sit at $83 at the time of writing.
Bloomberg suggested this was due to the company reporting lower than expected transaction volume at $52.5 billion, as opposed to the estimated $53.47 billion.
Bitcoin from the Block
Dorsey, the fervent Bitcoin maxi, has been relatively quiet about his plans for digital gold since announcing that Block Inc. was bypassing the Web3 model to build the Bitcoin blockchain-focused Web5 project in June.
Web5 is essentially a decentralized web platform, or DWP, that allows developers to create decentralized web apps via DIDs and decentralized nodes, which will also have a monetary network built around BTC, and not smart contract backed tokenization.