Dissecting Block Inc.’s Bitcoin Blueprint For Corporate Balance Sheets
In a recent memo, Block Inc. – led by Bitcoin Maxi, Jack Dorsey, shared the company’s interaction with Bitcoin, highlighting its operations and sharing how other corporations can emulate them.
The memo highlights Block, Inc.’s strategy for company-owned Bitcoin, which was held as an investment. Starting with an overview of the company’s current Bitcoin ecosystem. As of this writing, the Jack Dorsey-led company owns a Cash App product that allows users to withdraw, buy, and sell Bitcoin directly on the platform. It also owns TBD, a developer platform with a primary focus on building decentralized financial solutions to open up the crypto world to more users.
BitKey, a self-custody Bitcoin wallet, Spiral – an independent team that’s solely responsible for contributing to the Bitcoin Network and a BTC mining system is also part of Block, Inc.’s Bitcoin empire.
Block Inc.’s BTC Purchase Strategies
Historically, Block, Inc. has been a lump-sum buyer of BTC. The firm has in the past bought $50 million worth of Bitcoin in October 2020 at an average BTC market value of $10,618; in this purchase, Block received 4709 Bitcoins. Again, in Feb 2021, it purchased 3,318 Bitcoins at $51,236 each, for an aggregate price of $170 million.
It’s clear that Block’s initial purchase strategy leaned toward lump-sum BTC purchasing; however, in the recent meme, Block Inc. announced its change of approach, opting for a more stable approach, sidestepping the complexities of market timing. As a result, Block Inc. will adopt the dollar-cost averaging method (DCA) and commit 10% of the company’s monthly gross profits from Bitcoin products to the purchase of Bitcoin.
“Under the DCA program, we plan to purchase Bitcoin on a monthly cadence utilizing
TWAP orders, starting April 2024. We will execute these over a shorter time window
due to lower notional trade values and improved Bitcoin liquidity compared to 2020
and 2021. To reduce slippage, we have chosen to purchase Bitcoin over a two-hour
window that has historically had the greatest amount of liquidity.”
How Block Inc. Handles Accounting, Insurance, and Custody of BTC
According to the Bitcoin Blueprint, Block suggests the use of cold storage facilities. Internally, the company has developed SubZero, a hardware security module-backed solution for securing customers and Block’s Bitcoin holdings.
Block Inc. says insurance options for corporations with Bitcoin investments. The company has existing covers protecting from both internal and external theft. The covers vary and are hugely dependent on the type of storage used. Block suggests proper evaluation of the level of cover provided before choosing a custodian.
Accounting rules have evolved for cryptocurrencies. Initially, AICPA’s accounting standards would classify Bitcoin as an indefinite-lived intangible asset. However, in December 2023, the FASB released the Accounting Standards Update, prompting Block, Inc. to adjust and remeasure BTC value and adjust net income.
