WEBVTT - ICYMI: Block Improving Profitability, Keeping Eye on Crypto

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. You're listening to Bloomberg

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<v Speaker 1>BusinessWeek with Carol Masser and tim Stenoveek on Bloomberg Radio Well.

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<v Speaker 1>Earlier this month, Block, the company formerly known as Square,

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<v Speaker 1>raised its full year profit guidance this after second quarter

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<v Speaker 1>earnings came in well ahead of Wall Street expectations. It

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<v Speaker 1>was fueled by strength and its cash app lending business

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<v Speaker 1>and resilient payment volumes. The company now expects to generate

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<v Speaker 1>ten point one seven billion dollars in gross profit this year.

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<v Speaker 1>That's up from a prior forecast of nine point nine

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<v Speaker 1>to six billion. We've got with us am Rita Ahujia,

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<v Speaker 1>CFO and COO of Block. She joins us from Palo Alto, California,

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<v Speaker 1>Actually from Hillsborough, California. Excuse me, I'm rida is going

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<v Speaker 1>to be featured in an upcoming edition of the Bloomberg

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<v Speaker 1>CFO Briefing newsletter. You can sign up for that at

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<v Speaker 1>Bloomberg dot com slash CFO Briefing. Also with us is

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<v Speaker 1>Nina Trentman, Bloomberg News senior editor. She writes the Bloomberg

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<v Speaker 1>CFO Briefing newsletter. She joins us here in the Bloomberg

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<v Speaker 1>in Active Brokers Studio. Welcome, Welcome everybody, and Rita, I

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<v Speaker 1>want to start with you. I almost said Square at

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<v Speaker 1>Block you've got a great view of what the consumer's

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<v Speaker 1>doing because of transactions, because of what's happening with the

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<v Speaker 1>cash app. How would you describe the US consumer right now?

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<v Speaker 2>Yeah?

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<v Speaker 3>Well, first of all, thank you so much for having me.

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<v Speaker 3>It's great to be here. You know, look, we have

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<v Speaker 3>real time data across our two at scale ecosystems, Square

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<v Speaker 3>that serves sellers small businesses, and across that we see

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<v Speaker 3>hundreds of millions of buyer cards Consumer cards, and then

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<v Speaker 3>cash App, which serves individuals fifty seven million monthly active

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<v Speaker 3>accounts on cash App across the United States. So between

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<v Speaker 3>these two businesses we get to see a lot in

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<v Speaker 3>terms of consumer spending and consumer health patterns. Overall, what

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<v Speaker 3>we've seen is resilience. From a Square perspective, we see

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<v Speaker 3>strong retention. This is the growth or seam store growth

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<v Speaker 3>for a small business on our platform, remaining steady and strong.

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<v Speaker 3>And we see strong new customer acquisition, which we think

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<v Speaker 3>is a sign of strong small business as well as

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<v Speaker 3>the growth of our platform. And then from a cash

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<v Speaker 3>op perspective. We see continued growth in spending and in

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<v Speaker 3>earned wages on our platform, which again is an indication

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<v Speaker 3>of the engagement of our platform, our ability to command

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<v Speaker 3>share of wallet, as well as the resilience of a consumer.

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<v Speaker 2>Man Rita, thanks about joining us. Just following up there.

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<v Speaker 2>In terms of your business, you also have a buy now,

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<v Speaker 2>pay later component. I'm wondering how delinquency rates have evolved

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<v Speaker 2>in that business and also how you're thinking about underwriting

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<v Speaker 2>in this somewhat uncertain macro environment.

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<v Speaker 3>Well, we think the product attributes of our three lending

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<v Speaker 3>products enable us to be pretty nimble and be able

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<v Speaker 3>to pivot quickly to the extent we do see a

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<v Speaker 3>turn in repayment rates, which as you heard on our call,

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<v Speaker 3>we haven't yet heard. We have three primary lending products,

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<v Speaker 3>Square loans that serve small businesses. As you note by

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<v Speaker 3>now pay later, which serves customers at a point of

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<v Speaker 3>checkout when they're buying something and they can pay in

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<v Speaker 3>for that transaction, and then cash that borrow which enables

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<v Speaker 3>you to get a line of credit that often bridges people.

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<v Speaker 3>We know so many Americans are living to effect a

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<v Speaker 3>paycheck and this helps smooth their cash flows, and across

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<v Speaker 3>each of these three lending products, we've seen strong and

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<v Speaker 3>healthy repayment behavior. Now we're ready to the extent that

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<v Speaker 3>that changes. We have the ability to update our underwriting

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<v Speaker 3>machine learning based underwriting models in real time. But we

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<v Speaker 3>also want to be there to support customers as their

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<v Speaker 3>needs arise, and we think that our products can do

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<v Speaker 3>that effectively.

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<v Speaker 2>Just following up in terms of signals that you're looking

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<v Speaker 2>for specifically on performance of the business and whether any

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<v Speaker 2>of the micro uncertainty is feeding through. What are the

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<v Speaker 2>metrics that you're specifically looking for.

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<v Speaker 3>Sure, So from a cash that perspective, we look at

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<v Speaker 3>things like inflows per active. That's the amount of mine

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<v Speaker 3>that customers bring into cash App, and that held a

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<v Speaker 3>growth rate on infloce proactive in the second quarter for

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<v Speaker 3>us with cash up was at eight percent, showing again

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<v Speaker 3>strong engagement with our platform and resilience of the consumer.

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<v Speaker 3>We also look at things like commerce volumes. Our commerce

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<v Speaker 3>volumes over the last twelve months within cash App grew

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<v Speaker 3>sixteen percent year over that year over year. That's the

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<v Speaker 3>amount of money that people are using our platform to

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<v Speaker 3>conduct commerce, whether it's by now, pay later, cash up card,

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<v Speaker 3>or cash up pay. We also look from a square

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<v Speaker 3>perspective at things like growth on our discretionary verticals, so

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<v Speaker 3>our food and beverage GPV, which you can think of

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<v Speaker 3>as discretionary. We serve a lot of quick service restaurants.

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<v Speaker 3>Full service restaurants grew fifteen percent year year in the

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<v Speaker 3>second quarter. Retail GPV also oftentimes discretionary vertical for US

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<v Speaker 3>grew ten percent year every year. Again, these are healthy

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<v Speaker 3>rates of growth, but we're very watchful. We look at

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<v Speaker 3>this data on a daily basis, and we want to

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<v Speaker 3>be there both to protect our business but also more

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<v Speaker 3>importantly serve our customers to the extent that you know,

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<v Speaker 3>in this dynamic environment, anything were to change.

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<v Speaker 4>I want to pivot a little bit to crypto because

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<v Speaker 4>block holds roughly eighty six hundred bitcoins worth almost a

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<v Speaker 4>billion dollars, and crypto treasury companies have been getting a

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<v Speaker 4>lot of attention. You guys own bitcoin. Are there any

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<v Speaker 4>plans to add Ether to the company. What's the journey

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<v Speaker 4>been like on that crypto planet? Yeah, Ether plans at all.

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<v Speaker 3>No plans to add anything beyond Bitcoin from a crypto

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<v Speaker 3>currency perspective to our balance sheet. We believe that if

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<v Speaker 3>the Internet is to have a currency. Bitcoin is the

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<v Speaker 3>most likely contender. It's the longest lived, it's resilient, it's

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<v Speaker 3>an open developer ecosystem. All the rules are understood, and

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<v Speaker 3>it is effectively an open source platform, an open protocol

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<v Speaker 3>for money. We think ultimately, if the Internet does have

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<v Speaker 3>a currency, and that is bitcoin, that enables us as

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<v Speaker 3>a company to move at the speed of the Internet

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<v Speaker 3>as we think about our business more globally. So a

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<v Speaker 3>world in which bitcoin succeeds as a world in which

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<v Speaker 3>companies like ours can move more efficiently and more quickly

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<v Speaker 3>to serve our customers. That's the sort of purpose the

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<v Speaker 3>strategic alignment that we have with bitcoin. We have all

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<v Speaker 3>sorts of different ways that we as a company are

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<v Speaker 3>learning about how to operate in a bitcoin world. One

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<v Speaker 3>of those is by holding it on our own balance

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<v Speaker 3>sheet as a corporate to have book bitcoin in our treasuries,

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<v Speaker 3>and we've been doing this for five plus years now

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<v Speaker 3>and it's something where we get to learn the insurance aspects,

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<v Speaker 3>the buy sell aspects, the custody aspects, the protection around that,

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<v Speaker 3>and how we think about the accounting and the tax

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<v Speaker 3>elements for bitcoin. So we're learning a lot as a

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<v Speaker 3>company as we do that just as an individual would

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<v Speaker 3>or another institution might, and I think it's something that

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<v Speaker 3>a lot of other corporates will begin to consider more

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<v Speaker 3>and more.

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<v Speaker 1>We're speaking with Amrita, who'sia CFO and COO of Block

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<v Speaker 1>and Rita on the bitcoin question, the buying and selling.

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<v Speaker 1>Do you have plans to buy more bitcoin to add

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<v Speaker 1>to the treasury.

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<v Speaker 3>We have a program in place where we dollar cost

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<v Speaker 3>to average our bitcoin purchases. We have a gross profit

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<v Speaker 3>that we generate from bitcoin in our customer oriented products,

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<v Speaker 3>so we sell bitcoin through cash App. We've sold over

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<v Speaker 3>fifty eight billion dollars worth of bitcoin to our cash

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<v Speaker 3>app customers. We also have a product that we're launching

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<v Speaker 3>in the back half of this year for bitcoin minors

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<v Speaker 3>around the infrastructure, the hardware and this integrated software for that.

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<v Speaker 3>And we have a self custody product, bitkey. We have

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<v Speaker 3>said that ten percent of all of the gross profit

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<v Speaker 3>that we generate across our bitcoin products we will invest

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<v Speaker 3>back in the bitcoin, and so we're in the market

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<v Speaker 3>every single day buying that ten percent worth of our

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<v Speaker 3>gross profit back into bitcoin.

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<v Speaker 2>Im Rita, we are running out of time just very quickly.

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<v Speaker 2>Just wandering from a CFO perspective. You said, if you've

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<v Speaker 2>held a bitcoin on your balance sheet for five years,

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<v Speaker 2>you've seen the fluctuations. That's basically what I'm hearing from

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<v Speaker 2>CFOs as to why they don't want to hold bitcoin.

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<v Speaker 2>How is the company navigating the ups and downs in

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<v Speaker 2>the price, even though most recently we've seen more increase

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<v Speaker 2>than decrease.

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<v Speaker 3>You know, there's been fluctuations in a number of different assets,

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<v Speaker 3>different asset classes. You have to be transparent with your

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<v Speaker 3>investors as to what's driving various elements. The updated accounting

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<v Speaker 3>standards for bitcoin treat it like any other asset that

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<v Speaker 3>you may own, where you write it up at the

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<v Speaker 3>end of the quarter if the value goes up, and

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<v Speaker 3>you write it down at the end of a quarter

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<v Speaker 3>if the value goes down. The prior standards, which to

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<v Speaker 3>get into some of the accounting wonkiness, were as an

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<v Speaker 3>intangible asset. We're very very strict and you can only

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<v Speaker 3>ever write down the value of bitcoin. So now with

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<v Speaker 3>these updated accounting standards that look like any other asset

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<v Speaker 3>you may hold on your balance sheet, we think that

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<v Speaker 3>that has the opportunity to create clarity for investors and

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<v Speaker 3>for companies and to bring more people into the bitcoin ecosystem.

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<v Speaker 1>I'm Rita, who's a CFO and COO of Block. Please

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<v Speaker 1>do come back and join us soon on a Bloomberg

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<v Speaker 1>Business Week Daily. Really appreciate your time. Once again, I'mrita,

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<v Speaker 1>who's just CFO and COO of Block, joining us from Hillsboro, California.

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<v Speaker 1>Also with us, Nina Trettonman, Bloomberg News Senior editor. She

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<v Speaker 1>writes the Bloomberg CFO Briefing newsletter. Sign up for at

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<v Speaker 1>Bloomberg dot com Slash CFO Dash Briefing