Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk to our financial statements associated with the effect of changes in market factors, including risks associated with interest rates, foreign currency, derivatives, equity investments, and crypto assets. These assets and equities are held for purposes other than trading.

Interest rate risk

Our exposure to changes in interest rates primarily relates to interest earned on our cash and cash equivalents, customer custodial cash and from our arrangement with the issuer of USDC.

Our investment policy and strategy related to our cash and cash equivalents and customer custodial cash funds is to preserve capital and meet liquidity requirements without increasing risk. Our cash and cash equivalents consist of money market funds denominated in U.S. dollars and cash deposits, and therefore the fair value of our cash, cash equivalents, and customer custodial funds would not be significantly affected by either an increase or a decrease in interest rates. However, the amount of interest we earn on these balances may be significantly impacted. The Federal Reserve has increased the Federal Funds Rate over 500 basis points since December 31, 2021 to control current levels of inflation and as of December 31, 2023, the Federal Funds Rate was 5.33%. As a result of these significant recent increases in interest rates, a decrease in interest rates is possible. A hypothetical 500 basis points increase or decrease in average interest rates applied to our average month end balances for the years ended December 31, 2023 and 2022, which corresponds closely to the increase of the Federal Funds Rate since early 2022, would have resulted in a $307.3 million and $270.6 million increase or decrease, respectively, in interest earned on cash, cash equivalents, and customer custodial funds.

We also earn stablecoin revenue from an arrangement with the issuer of USDC. Interest income is earned on USDC reserve balances. The issuer of USDC reported that, as of December 31, 2023, underlying reserves were held in cash, short-duration U.S. Treasuries, and overnight U.S. Treasury repurchase agreements within segregated accounts for the benefit of USDC holders, and therefore the fair value of these balances would not be significantly affected by either an increase or a decrease in interest rates. However, the related amount of stablecoin revenue we earn may be significantly impacted. A hypothetical 500 basis points increase or decrease in average interest rates applied to daily USDC reserve balances held would have resulted in a $735.5 million increase or decrease in stablecoin revenue for the year ended December 31, 2023 and a $685.7 million increase or decrease in stablecoin revenue for the year ended December 31, 2022.

Foreign currency risk

Foreign currency transaction risk

Revenues, expenses, and financial results of our foreign subsidiaries are recorded in the functional currency of these subsidiaries. Our foreign currency exposure is primarily related to transactions denominated in Euros and British Pounds attributable to cash and cash equivalents, customer custodial

funds and customer custodial cash liabilities and intercompany transactions where the transaction currency is different from a subsidiary’s functional currency. Changes in foreign exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our results of operations as expressed in U.S. dollars. We have experienced and will continue to experience fluctuations in our results of operations as a result of gains or losses on the settlement and the remeasurement of monetary assets and liabilities denominated in foreign currencies that are not the functional currency of the respective entity.

See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Comparison of the years ended December 31, 2023, 2022, and 2021—Other (income) expense, net” in Part II, Item 7 of this Annual Report on Form 10-K for a discussion of foreign exchange losses during the years ended December 31, 2023, 2022, and 2021. If an adverse 10% foreign currency exchange rate change was applied to the largest foreign currency exposure (e.g. Euro) or to all foreign currency exposures in aggregate, of monetary assets, liabilities, and commitments denominated in currencies other than its functional currency as of December 31, 2023 and 2022, it would not have a material impact on our financial results.

From time to time, we may enter into derivatives or other financial instruments in an attempt to hedge our exposure to foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations. Additionally, the volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our international operations increase our exposure to exchange rate fluctuations and, as a result, such fluctuations could have a material impact on our future results of operations and cash flows.

Foreign currency translation risk

Fluctuations in functional currencies from our net investment in international subsidiaries expose us to foreign currency translation risk, where changes in foreign currency exchange rates may adversely affect our results of operations upon translation into U.S. dollars. See the consolidated statements of comprehensive income (loss) in Part II, Item 8 of this Annual Report on Form 10-K for translation adjustments for the years ended December 31, 2023, 2022, and 2021. As of December 31, 2023 and 2022, a 10% increase or decrease in foreign currency exchange rates used in translating the financial statements of subsidiaries with functional currencies other than our reporting currency would not have a material impact on our financial results.

Market volatility and other risks associated with derivatives

We have exposure to derivatives and related hedges measured at fair value. Market risk on derivatives is the exposure created by potential fluctuations in market prices and other factors and is a function of the type of derivative product, the volume of transactions, the tenor and terms of the agreement and the underlying volatility.

As of December 31, 2023, we had embedded derivative assets and embedded derivative liabilities as a result of entering into transactions to borrow crypto assets, which are recorded on the consolidated balance sheets. We also had embedded derivative assets and embedded derivative liabilities for accounts and loans receivable and other payables denominated in crypto assets. These embedded derivative assets and liabilities are recorded on the consolidated balance sheets in accrued expenses and other current liabilities and accounts and loans receivable, net of allowance, respectively. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Comparison of the years ended December 31, 2023, 2022, and 2021—Operating expenses—Other operating expense, net” in Part II, Item 7 of this Annual Report on Form 10-K for a discussion of material gains and losses on derivatives during the years ended December 31, 2023, 2022, and 2021. As of December 31, 2023 and 2022, a 10% increase or decrease in the fair value of any of our derivative positions, individually or in the aggregate, would not have a material impact on our financial results. For more information on our derivatives and related hedges measured at fair value, see Notes 2.

Summary of Significant Accounting Policies, 6. Accounts and Loans Receivable, Net of Allowance, 11. Prepaid Expenses and Other Current and Non-Current Assets, 12. Accrued Expenses and Other Current Liabilities, and 15. Derivatives, of the Notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Equity investment risk

We hold strategic investments in privately held companies in the form of equity securities without readily determinable fair values in which we do not have a controlling interest or significant influence. These investments are subject to a wide variety of market and price-related risks due to the lack of readily available market data, which requires us to make significant estimates and assumptions that could substantially impact the carrying value of the investments. We perform a qualitative assessment of our portfolio of strategic equity investments on a quarterly basis for indicators of impairment. Our analysis includes a review of indicators such as: operating results when available; business prospects of the investees; changes in the regulatory and macroeconomic environment; observable price changes in similar transactions; and general market conditions of the geographical area or industry in which our investees operate. If indicators of impairment exist and the estimated fair value of an investment is below the carrying amount, we will write down the investment to fair value.

As of December 31, 2023 and 2022, our strategic equity investments in privately held companies were $343.0 million and $326.7 million, respectively. We record all adjustments to the fair value of our investments through our consolidated statements of operations under other (income) expense, net. During the years ended December 31, 2023 and 2022, we recognized impairment expense of $29.4 million and $101.4 million related to our strategic investments in privately held companies, respectively. We anticipate volatility to our net income (loss) in future periods due to changes in the fair values associated with these investments and observable price changes in similar transactions that could impact our fair value assessments. Based on future market conditions, these changes could be material to our financial results. For more information, see Notes 2. Summary of Significant Accounting Policies and 11. Prepaid Expenses and Other Current and Non-Current Assets of the Notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Market price risk of crypto assets

We generate a large portion of our total revenue from transaction fees on our platform in connection with the purchase, sale, and trading of crypto assets by our customers. Transaction revenue is based on transaction fees that are either a flat fee or a percentage of the value of each transaction and may vary depending on payment type and the value of the transaction. We also generate a large portion of our total revenue from non-transaction-based services, such as staking and custody, and such revenue has grown over time. Accordingly, crypto asset price risk could adversely affect our operating results. In particular, our future profitability may depend upon the market price of Bitcoin and Ethereum, as well as other crypto assets. Crypto asset prices, along with our operating results, have fluctuated significantly. There is no assurance that crypto asset prices will reflect historical trends. A decline in the market price of Bitcoin, Ethereum and other crypto assets has had and could in the future have an adverse effect on our earnings, the carrying value of our crypto assets, and our future cash flows. This may also affect our liquidity and our ability to meet our ongoing obligations.

We record impairment charges on our crypto assets held when crypto asset prices decrease below the carrying value of these crypto assets. As of December 31, 2023 and 2022, a 10% decrease in crypto asset prices would not have a material impact on our financial results. Effective January 1, 2024 we adopted Accounting Standard Update 2023-08, Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) which will change how we value crypto assets held, as we will be required to recognize such assets at fair value with changes recognized in net income each reporting period. For more information, see Notes 2. Summary of Significant Accounting Policies and 9. Goodwill, Intangible Assets, Net, and Crypto Assets Held of the Notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.