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Square Renounces Public Crypto Exchanges to Trade Bitcoin Through Private OTC Broker Dealers

Jack Dorsey’s payment venture Square, disclosed in its latest quarterly filing that it’s now trading bitcoin through private over-the-counter (OTC) broker-dealers instead of public cryptocurrency exchanges for its Cash app, which facilitates all of its bitcoin transactions.

Square’s move is a step towards offering a more professional bitcoin trading service

The following disclosure means that most of Square’s bitcoin trading comes from private, over-the-counter (OTC) desks as opposed to the open, public exchanges. If experts are to believe this change is beneficial to Square as it is a developing step to offer a more professional bitcoin trading service. By moving off of public exchanges, and trading through OTC channels, Square is able to build a faster and more secure platform that would create less price volatility when trading large amounts of bitcoin.

Meltem Demirors, chief strategy officer at CoinShares, a cryptocurrency investment firm in his interview to CNBC said

“Working with a broker likely gets Square better pricing and better execution services than floating orders on the open market, as well as more confidentiality,”

Another prominent name of cryptos, Hunter Horsley, CEO of Bitwise Asset Management was quoted saying to CNBC that,

“There are many merits to trading OTC, which might be motivating Square’s switch,”

According to Hunter, Trades can run faster as they don’t require cash or bitcoin to be deposited in the platform before placing an order, while transactions are more secure, he said. Orders also remain private, providing more secrecy around Square’s market activity.

To quote from the company’s latest filing,

” During the fourth quarter of 2017, the Company started offering its Cash App customers the ability to purchase bitcoin, a cryptocurrency denominated asset, from the Company. The Company purchases bitcoin from private broker-dealers or from customers. Upon purchase, the Company records the cost of bitcoin within other current assets in its consolidated balance sheets. Upon sale, the Company records the total sale amount received from customers as bitcoin revenue and the associated cost as the cost of revenue.”

The company’s recent 10Q can be accessed here,

Also, read: Goldman Sachs Goes from Bitcoin-has-No-Value to Considering Crypto-Custody Services

Square a small player with growing strength in cryptos

As reported in the company’s quarterly filing, the carrying value of bitcoin held by the Company was $0.4 million and $0.3 million as of June 30, 2018, and December 31, 2017, respectively.  Square still isn’t making much money off its bitcoin service, reporting $400,000 in profit on $37 million of revenue in the second quarter. As the number’s show, Square’s bitcoin service may not be a huge money earner yet for the company, but this change of moving to OTC markets can turn it into a more sophisticated trading platform going forward.

During an earnings call with reporters on Wednesday, Square CFO Sarah Friar said that the bitcoin service isn’t expected to be a huge growth driver anytime soon.

“It’s not a major monetization engine,” Friar said. “The goal is to continue to drive utility in the Cash app.”

The company’s reported financial also mentioned that

“The Company assesses the carrying value of bitcoin held by the Company at each reporting date and records an impairment charge if the cost exceeds the fair value. Losses on bitcoin for the three and six months ended June 30, 2018, were insignificant.”

Although cryptocurrencies may not be the current focus of Square, it definitely has potential. And as the market grows, its contribution to squares revenues would definitely see an uptick hopefully bring it to the center of the strategy table for Square.

Will this strategic move change fortunes for Square in crypto payments? Do let us know your views on the same.

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Square Renounces Public Crypto Exchanges to Trade Bitcoin Through Private OTC Broker Dealers
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Square Renounces Public Crypto Exchanges to Trade Bitcoin Through Private OTC Broker Dealers
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\Jack Dorsey’s payment venture Square, disclosed in its latest quarterly filing that it's now trading bitcoin through private over-the-counter (OTC) broker-dealers instead of public cryptocurrency exchanges for its Cash app, which facilitates all of its bitcoin transactions.
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About Nilesh Maurya 193 Articles

Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies.