It was a monster quarter for Square’s bitcoin business.
“Cash App generated $1.63 billion of bitcoin revenue and $32 million of bitcoin gross profit during the third quarter of 2020, up approximately 11x and 15x year over year, respectively,” the publicly traded payments firm wrote in its Q3 investor letter published Thursday at market close.
For comparison, in the second quarter of 2020 the publicly traded payments company sold $875 million through its Cash App with $17 million in profit. Square sold $516 million in bitcoin over the entire year of 2019.
Among publicly traded companies, it could be said that Jack Dorsey’s Square has led the way in building bitcoin services, first piloting bitcoin purchases in its Cash App in late 2017. PayPal confirmed its rumored support for bitcoin, bitcoin cash, ether and litecoin just last month.
Square went one step further in Q3, however, officially adding bitcoin to its balance sheet, rather than simply making it available to customers.
Square acknowledged its October announcement of a $50 million purchase of bitcoin as a treasury asset in its shareholder letter. Bitcoin’s price hovered under $11,000 at the time. As of this writing it has broken $15,000.
“The accounting rules for bitcoin will require us to recognize any decreases in market price below cost as an impairment charge, with no upward revisions when the market price increases until a sale,” the firm wrote Thursday.
In Q1 2020, Square brought in $306 million in revenue from selling bitcoin in the Cash App. It brought in $875 million in revenue in Q2. However, the margin on bitcoin sales is always quite small for Square. In late 2019, the company changed the way it supported its bitcoin business, shifting to a fee-based model, in order to make costs to buyers more transparent.
Sales of bitcoin in Cash App earn Square a little under 2% in profit, which is a very thin margin compared to Square’s overall business, which runs at much higher margins. For example, the company overall made $597 million on $1.92 billion in revenue in the second quarter, or roughly a 31% profit.
Overall, the Cash App also delivers stronger profits. In the second quarter, it brought in $1.2 billion worth of revenue and $281 million in gross profit, according to its Q2 shareholder letter.
Cash app’s profit in the third quarter hit $385 million.
Square’s bitcoin research arm, Square Crypto, recently announced a design grant meant to help make crypto wallets more user-friendly.
Read the full investor letter below: