PayPal, a leading fintech entity, has seen its cryptocurrency holdings swell by over 56% from Q4 2022, with Bitcoin (BTC) and Ethereum (ETH) accounting for $499 million and $362 million respectively.

In a quarterly report submitted to the United States Securities and Exchange Commission, PayPal unveiled its cryptocurrency holdings. As of March 31, 2023, the fintech giant claimed a consolidated total of $943 million in digital currency assets, marking a 56% surge from the previous quarter’s reported $604 million.

For the recent quarter, PayPal’s total reported financial liabilities were $1.2 billion. Remarkably, digital assets constituted 77.9% of this total, an increase of more than 10% from the figures reported in Q4 2022.

In the report, PayPal labels its digital assets as a “safeguarding liability” owing to the “distinct risks linked to cryptocurrencies.” It also states that the company’s specific held cryptocurrencies haven’t altered since the last quarter:

“We provide customers in certain markets the opportunity to purchase, hold, sell, receive, and send select cryptocurrencies, and use proceeds from cryptocurrency sales to pay for purchases at checkout. This range of cryptocurrencies includes Bitcoin, Ethereum, Bitcoin Cash, and Litecoin (collectively referred to as ‘our customers’ crypto assets’).”

The company entrusts the custody of these assets to third-party custodians. While PayPal acknowledges that this could potentially create liabilities for its customers if these third parties fail to process transactions, it also mentioned that no such incidences have occurred thus far:

“As of March 31, 2023, the Company has not experienced any safeguarding loss events. Hence, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value.”

The Q1 2023 breakdown of PayPal’s digital assets consists of $499 million in Bitcoin BTC $29,998 (an increase from December’s $291 million), $362 million in Ether ETH $1,875 (rising from $250 million), and $82 million made up of Bitcoin Cash BCH $136 and Litecoin LTC $86.93 (an increase from $63 million).

PayPal’s profitability also saw an uptick in the first quarter. The company reported per-share earnings of $0.70 on a generally accepted accounting principles (GAAP) basis, a growth from $0.43 in Q1 2022. On a non-GAAP basis, PayPal’s per-share earnings stood at $1.17, a climb from $0.88 in the first quarter of 2022.

Cryptocurrencies are fast becoming a significant asset class for many financial and tech companies. As more firms like PayPal incorporate digital assets into their balance sheets, it’s crucial for investors to understand the potential impact on these companies’ financials.

As more companies adopt cryptocurrencies, it creates a ripple effect, encouraging other corporations to also invest in or hold digital assets. This cycle can lead to increased liquidity and stability in the crypto markets.

However, cryptocurrencies are highly volatile and come with their own unique risks. As noted by PayPal, these assets are considered a “safeguarding liability.” It’s therefore essential for individuals and corporations alike to thoroughly understand these risks before investing in or holding cryptocurrencies.