By Jeff John Roberts and Jen Wieczner
May 2, 2018

Square shed light on the state of its fledgling Bitcoin business in its earnings report Wednesday afternoon. The good news for the payment company is that it pulled in $34 million of Bitcoin-related revenue last quarter—the bad news is that Square spent nearly as much to acquire Bitcoin in the first place.

Square, which is best known for its dongle that helps small merchants accept credit cards, began officially offering Bitcoin purchases within its peer-to-peer payment service, Square Cash, in January, following a brief test program.

The Bitcoin trading service appears to be gaining some traction, accounting for nearly 5% of Square’s overall revenue. But the results suggest the company may be struggling to make a profit in the venture’s early days. Here’s a breakdown from the company’s income statement:

Looking at revenue alone, Square appears to have made only a tiny return on Bitcoin so far, making just $223,000 more from selling Bitcoin than it paid to buy the cryptocurrency—a return of only 0.66%.

But Square may actually have lost money on its cryptocurrency business so far. The value Square recorded for its Bitcoin holdings was only $200,000 at the end of the first quarter, down from the $300,000 they were worth at the end of 2017, according to the company’s quarterly report. Square acknowledged that it had taken a small hit on Bitcoin, though not enough to merit recording an impairment charge: “Losses on Bitcoin for the three months ended March 31, 2018 were insignificant,” the company wrote in the report.

Square’s difficulties may stem in part from an ongoing slump in Bitcoin prices since the boom of late 2017, and in its strategy for acquiring it—which is similar to how the average person would buy Bitcoin. As Square explains in the earnings report, the “company purchases Bitcoin from public cryptocurrency exchanges or from customers.”

Public exchanges for buying cryptocurrency include Coinbase, the largest U.S. exchange, as well as Kraken, Circle and other foreign exchanges.

Bitcoin prices have fallen more than 50% since the end of last year, around the same time Square started buying the cryptocurrency in earnest.

While Square’s stock price initially rose on news of its Bitcoin business, the sheen among investors may have worn off. On Monday, the stock briefly fell 3.8% after a prominent short-seller belittled the strategy as “Wall Street drunk on Bitcoin nonsense.”

In after hours trading on Wednesday, Square shares were down over 6% in response to future earnings guidance that fell lower than expected. In the first quarter, the company posted earnings of 6 cents a share.

It’s likely too soon, however, to gauge the overall prospects of Square’s foray into Bitcoin. The market is still nascent in many respects and other prominent financial brands, including the popular millennial stock-buying app Robinhood, are making similar moves into cryptocurrency.

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