Item 3. 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, liabilities, and equities are held for purposes other than trading. There have been no material changes to our market risk exposures from the information presented in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2023, except as described below.

Market 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 our subscription products and services, 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 from quarter to quarter. 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.

In addition to the exposures described above, we hold crypto assets for various reasons. As of June 30, 2024, we held the following crypto assets: $1.2 billion held for investment; $223.1 million that were borrowed; $84.2 million held for operations; and $21.1 million held as collateral.

See Note 2. Summary of Significant Accounting Policies of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of these different categories of assets. Beginning on January 1, 2024, as a result of our adoption of ASU 2023-08, we have changed how we value and present crypto assets held in our Condensed Consolidated Balance Sheets and thus there are no comparable figures to report as of December 31, 2023.

Crypto assets held for investment are primarily held long term, and historically, we have not attempted to reduce our market risk exposure associated with these crypto assets. Crypto asset prices have been volatile, as demonstrated by the one year historical volatility of Bitcoin and Ethereum of approximately 50% implied from the annualized standard deviation of daily price returns observed in the past 24 months. A hypothetical 50% increase or decrease in crypto assets prices as of June 30, 2024 and December 31, 2023 would result in a $617.1 million and $514.0 million impact, respectively, to the value of our Crypto assets held for investment and would have, under ASU 2023-08, been recorded as a gain or loss in our Condensed Consolidated Statements of Operations.

Our market risk exposure on all remaining categories of crypto assets that we hold is limited, either due to their short-term nature or to naturally offsetting positions. Crypto assets held for operations are received as a form of payment and are converted to cash nearly immediately or used timely to fulfill corporate expenses and therefore are subject to limited market risk. A hypothetical 10% increase or decrease in crypto asset prices as of June 30, 2024 and December 31, 2023 applied to the value of our Crypto assets held for operations would not have a material impact on our Condensed Consolidated Financial Statements. Our market risk exposure on Crypto assets borrowed and Crypto assets held as collateral is limited through naturally offsetting positions of the crypto asset borrowings and obligation to return collateral which contain embedded derivatives that are remeasured each reporting period. See —Borrowings and related collateral derivative positions below.

Market Risk of Derivatives

We have exposure to derivatives measured and recorded 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.

Strategic derivative positions

In certain market conditions, we may opportunistically employ derivative strategies within a disciplined risk management framework to attempt to hedge our exposure to foreign currency or crypto assets positions that are not receivable, payable, or borrowing positions but rather direct crypto assets held for investment. We did not have any such positions as of June 30, 2024 or December 31, 2023.

Our remaining derivative positions, including all of those held during the periods presented, arise from our operations and reflect a strategy of largely mitigating these remaining exposures through naturally offsetting positions, regardless of whether hedge accounting is achieved. See below for a discussion of these derivatives.

Borrowings and related collateral derivative positions

Our market risk exposure on derivative crypto asset borrowings and obligations to return crypto asset collateral (“Gross Financing Derivatives”) is naturally offset, at least in part, by the associated non-derivative crypto assets borrowed, crypto assets held as collateral, and crypto asset loan receivables originated with borrowed assets, all of which are recorded and held at fair value. The following table summarizes our Gross Financing Derivatives and net exposures, after considering the naturally offsetting non-derivative positions, related to our crypto asset borrowings and associated collateral (“Net Financing Positions”) (in thousands):

The following table presents the impact of changes in fair value of the derivatives noted above when considered gross and net of the naturally offsetting non-derivative positions in our Condensed Consolidated Statements of Operations (in thousands):

(1)Gains (losses) on derivatives are recorded in our Condensed Consolidated Statements of Operations in the locations shown in Note 12. Derivatives of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

(2)As of January 1, 2024, the date of our adoption of ASU 2023-08, net gains after considering the associated naturally offsetting non-derivative positions are recorded in Transaction expense in the Condensed Consolidated Statements of Operations. Prior to adoption of ASU 2023-08, net gains after considering the naturally offsetting non-derivative positions were recorded in Other operating expense (income), net in the Condensed Consolidated Statements of Operations.

As of June 30, 2024 and December 31, 2023, a hypothetical 50% increase or decrease in the fair value of these derivative positions, after considering the associated naturally offsetting positions, would not have a material impact on our Condensed Consolidated Financial Statements.

Other derivative positions

Our market risk exposure to derivatives arising from accounts receivable and payable denominated in crypto assets (“Other Derivatives”) represents unmitigated exposure. However, these assets and liabilities are short-term in nature. The following table summarizes these Other Derivatives exposures, on a gross basis, as the receivables and payables may be unrelated (in thousands):

The following table presents the impact of changes in fair value of the derivatives noted above in our Condensed Consolidated Statements of Operations (in thousands):

(1)(Losses) gains on derivatives are recorded in our Condensed Consolidated Statements of Operations in the locations shown in Note 12. Derivatives of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of June 30, 2024 and December 31, 2023, a hypothetical 10% increase or decrease in the fair value of these Other Derivatives positions would not have a material impact on our Condensed Consolidated Financial Statements.

For more information on our derivatives, see Notes 2. Summary of Significant Accounting Policies, 6. Collateralized Arrangements and Financing, 7. Accounts Receivable, Net, 10. Other Condensed Consolidated Balance Sheets Details, and 12. Derivatives of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.