Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk to our f inancial 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 purpo ses other than tr ading, except for our marketable investments which are available for trading.
Inte rest Rates
Our exposure to changes in interest rates primarily relates to interest earned on our cash and cash equivalents and customer custodial funds and from our arrangements with payment stablecoin issuers .
Our investment policy and strategy related to our cash and cash equivalents and customer custodial funds is to preserve capital and meet liquidity requirements without increasing risk. These funds consist of cash deposits, payment stablecoins, and money market funds, and therefore the fair value of our cash and cash equivalents and customer custodial funds would not be significantly affected by either an
105
Table of Contents
increase or a decrease in interest rates. However, the amount of interest we earn on certain of these balances, particularly the money market funds, may be significantly impacted. The Federal Reserve has adjusted the Federal Funds Rate significantly in recent years, including lowering it from a December 31, 2023 rate of 5.33%, a sustained peak, to 3.64% as of December 31, 2025. As a result, we believe additional changes in interest rates of this magnitude are reasonably possible. A hypothetical 150 basis points increase or decr ease in average interest rates applied to our average month end cash equivalents balances, excluding payment stablecoins, for the years ended December 31, 2025 and 2024 , would have resulted in an impact of $143.2 million and $124.3 million, r espectively, on interest earned on these funds.
We earn stablecoin revenue from arrangements with payment stablecoin issuers, primarily from a USDC-related arrangement with Circle. Interest income is earned by Circle on USDC reserve balances held. Circle reported that, as of December 31, 2025, the underlying reserves were held in cash within segregated accounts titled for the benefit of USDC holders and a government money market fund that held cash, short-duration U.S. Treasuries, and overnight U.S. Treasury repurchase agreements, 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 150 basis points increase or decrease in average interest rates applied to daily USDC reserve balances held by Circle for the years ended December 31, 2025 and 2024, would have resulted in an impact of $540.3 million and $293.5 million, respectively, on stablecoin revenue . The increase in the hypothetical impact on stablecoin revenue since December 31, 2024 primarily reflects higher average USDC market capitalization.
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, Ethereum, and Solana, 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, Solana, and other crypto assets has in the past had and could in the future have an adverse effect on our earnings and our future cash flows. This may also affect our liquidity and ability to meet ongoing obligations.
In addition to the exposures described above, we hold crypto assets for various reasons. As of December 31, 2025, we held the following crypto assets: $2.0 billion held for investment; $318.8 million that were borrowed; $120.8 million held for operations; and $822.8 million held as collateral. In addition, as of December 31, 2025, customers had pledged $1.6 billion of crypto assets that are not recognized as collateral. See Note 2. Summary of Significant Accounting Policies of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of these different categories of assets.
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 December 31, 2025 and 2024 would result in a $1.0 billion and $776.5 million impact, respectively, to the value of our Crypto assets held for investment and would have been recorded as a gain or loss in Losses (gains) on crypto assets held for investment, net in our Consolidated Statements of Operations. The increase in the hypothetical gains or losses since December 31, 2024 reflects an increase in the units held, as we increased our investment in crypto assets during the year ended December 31, 2025, deploying available cash.
106
Table of Contents
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 or used to fulfill expenses, primarily blockchain rewards, nearly immediately, and therefore are subject to limited market risk. A hypothetical 10% increase or decrease in crypto asset prices applied to the value of our Crypto assets held for operations as of December 31, 2025 and 2024, and applied to the simple average of our gross inflows and outflows of these assets for their weighted average period outstanding during 2025 and 2024, would not have a material impact on our Consolidated Financial Statements. Our market risk exposure on Crypt o assets borrowed and Crypto assets held as collateral is limited through naturally offsetting positions o f the crypto asset borrowings and obligation to return crypto asset collateral which contain embedded derivatives that are remeasured each reporting period. See — Borrowings and related collateral derivative positions below. Similarly, we do not have market risk exposure on crypto assets received but not recognized as collateral as we are obligated to return that collateral.
Marketable and Strategic Investments
We hold two categories of investments not denominated in crypto assets - marketable investments and strategic investments. Our marketable investments primarily comprise marketable equity securities and are available for trading, while our strategic investments are primarily held long term. Marketable investments may begin as strategic investments, as certain securities in which we take a stake for strategic purposes become publicly traded and our intentions with respect to these holdings change accordingly. We have not attempted to reduce our market risk exposure associated with any of these investments, and adjustments to the fair value of these investments , as well as realized gains or losses on sales, are recorded in Other expense (income), net in our Consolidated Statements of Operations.
Marketable investments
Our marketable investments are measured and recorded at fair value on a recurring basis, exposing us to risk that the fair value of these securities will decline due to changes in market prices. As of December 31, 2025, our marketable investments were $309.8 million. No marketable investments were held as of December 31, 2024. Adjustments to the fair value of these investments, as well as realized gains on sales of these investments, relate primarily to our investment in Circle Internet Group, Inc. See Notes 14. Fair Value Measurements and 17. Other Consolidated Statements of Operations Details of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details.
Changes in market prices of our marketable investments could materially impact our future results of operations and cash flows, the impact of which is difficult to predict as it depends on market factors that we cannot forecast with reliable accuracy, including due to lack of extended price history for our largest holding as it entered the public market in June 2025, and has had high price volatility since public debut. If an adverse 10% fair value remeasurement was applied to our marketable investments as of December 31, 2025 , it would not have a material impact on our financial results.
Strategic investments
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
107
Table of Contents
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, 2025 and 2024 , our strategic equity investments in privately held companies were $623.0 million and $374.2 million , respectively. During the years ended December 31, 2025 and 2024 , we recognized immaterial impairment expense related to our strategic investments in privately held companies. We anticipate volatility to our net income 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 — Investments and 14. Fair Value Measurements of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K .
Foreign Currency
Foreign currency transactions
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 fund 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 and cash flows as a result of changes in foreign currency exchange rates, including from 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. 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. No such instruments were outstanding as of December 31, 2025 and 2024 or during the year ended December 31, 2025.
Gains and losses on foreign currency exchange were immaterial during the years ended December 31, 2025 and 2024. 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, 2025 and 2024, it would not have a material impact on our financial results. Our international operations expose us to exchange rate fluctuations otherwise. Such fluctuations could have a material impact on our future results of operations and cash flows, the impact of which is difficult to predict as it depends on many factors that we cannot forecast with reliable accuracy, including the volume and nature of our transactions and the particular currencies in which these transactions are denominated.
Foreign currency translation
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. S ee our Consolidated Statements of Comprehensive income in Part II, Item 8 of this Annual Report on Form 10-K for translation adjustments for the years ended December 31, 2025, 2024, and 2023. As of December 31, 2025 and 2024, 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.
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
108
Table of Contents
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 held for investment. We did not have any such positions as of December 31, 2025 or 2024.
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 (when combined with their host contracts, “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):
December 31,
2025 2024
Gross Financing Derivatives
$ 1,155,009 $ 1,067,594
Net Financing Positions
$ — $ —
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 Consolidated Statements of Operations (in thousands):
Year Ended December 31,
2025 2024
Gains (losses) on Gross Financing Derivatives (1)
$ 328,436 $ (114,521)
Gains (losses) on Net Financing Positions (2)
$ — $ —
__________________
(1) Gains and losses on derivatives are recorded in our Consolidated Statements of Operations in the locations shown in Note 12. Derivatives of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
(2) Net gains and losses, after considering the associated naturally offsetting non-derivative positions, are recorded in Transaction expense in the Consolidated Statements of Operations.
As of December 31, 2025 and 2024, 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 Consolidated Financial Statements. This hypothetical 50% is calculated as discussed above under Crypto Assets , as the fair value of these derivatives is also derived primarily from the volatility of Bitcoin and Ethereum over a similar period.
109
Table of Contents
Other derivative positions
Our market risk exposure to derivatives arising from accounts receivable and payable denominated in crypto assets (when combined with their host contracts, “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):
December 31,
2025 2024
Gross Other Derivatives
$ 34,468 $ 228,712
The following table presents the impact of changes in fair value of the derivatives noted above in our Consolidated Statements of Operations (in thousands):
Year Ended December 31,
2025 2024
(Losses) gains on Gross Other Derivatives (1)
$ (11,053) $ 83,269
__________________
(1) Gains and losses on derivatives are recorded in our Consolidated Statements of Operations in the locations shown in Note 12. Derivatives of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
As of December 31, 2025 and 2024, a hypothetical 10% increase or decrease in the fair value of these Other Derivatives positions would not have a material impact on our Consolidated Financial Statements.
For more information on our derivatives, see Notes 2. Summary of Significant Accounting Policies — Derivative contracts, 5. Collateralized Arrangements and Financing, 7. Accounts Receivable, Net, 12. Derivatives, and 13. Other Consolidated Balance Sheets Details of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
110