| Description of derivatives and related hedge accounting designation |
The following outlines the Company’s derivatives, which were all embedded forward contracts as of March 31, 2024: | | | | | | | Location of Host Contract and Derivative on Balance Sheets | Description of Derivative | | | Accounts receivable, net | The Company provided services for which, under the contract, the counterparty pays a fixed amount in crypto assets in the future. | | | | | Crypto asset borrowings | The Company borrowed crypto assets that resulted in the obligation to deliver a fixed amount of crypto assets in the future. See Note 6. Collateralized Arrangements and Financing for additional information. | Obligation to return collateral | The Company receives crypto asset collateral that results in the obligation to return collateral received as a fixed amount of crypto assets. See Note 6. Collateralized Arrangements and Financing for additional information. | | Accrued expenses and other current liabilities | The Company entered into arrangements that result in the obligation to deliver a fixed amount of crypto assets in the future. | | | | | | |
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| Schedule of the notional amount of derivative contracts outstanding |
The following table summarizes the notional amounts of derivative instruments outstanding, measured in U.S. dollar equivalents (in thousands): | | | | | | | | | | | | | March 31, | | December 31, | | 2024 | | 2023 | Designated as hedges | | | | | | | | Crypto asset borrowings(1) | $ | — | | | $ | 31,666 | | | | | | | Not designated as hedging instrument | | | | | | | | | Accounts receivable denominated in crypto assets | 21,362 | | | 16,335 | | | | | | Crypto asset borrowings | 158,518 | | | 12,503 | | | Obligation to return loan collateral | 75,424 | | | — | | | Other payables denominated in crypto assets | 33,012 | | | 20,092 | | | | | | | | | |
__________________ (1) Prior to the adoption of ASU 2023-08, the Company applied hedge accounting using these derivative instruments in qualifying fair value hedges to hedge the fair value exposure of crypto asset prices for the crypto assets borrowed. As of January 1, 2024, the date of ASU 2023-08 adoption, these derivative instruments have been dedesignated. The following tables summarize information on derivative assets and liabilities that are reflected on the Condensed Consolidated Balance Sheets, by accounting designation (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Derivative Assets | | | | Gross Derivative Liabilities | | | | Not Designated as Hedges | | Designated as Hedges | | Total Derivative Assets | | | | Not Designated as Hedges | | Designated as Hedges | | Total Derivative Liabilities | | | | March 31, 2024 | | | | | | | | | | | | | | | | | Accounts receivable denominated in crypto assets | $ | 41,263 | | | $ | — | | | $ | 41,263 | | | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Crypto asset borrowings | 264 | | | — | | | 264 | | | | | 114,551 | | | — | | | 114,551 | | | | | Obligation to return loan collateral | — | | | — | | | — | | | | | 31,186 | | | — | | | 31,186 | | | | | Other payables denominated in crypto assets | 2,687 | | | — | | | 2,687 | | | | | 4,367 | | | — | | | 4,367 | | | | | | | | | | | | | | | | | | | | | Total fair value of derivative assets and liabilities | $ | 44,214 | | | $ | — | | | $ | 44,214 | | | | | $ | 150,104 | | | $ | — | | | $ | 150,104 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2023 | | | | | | | | | | | | | | | | | Accounts receivable denominated in crypto assets | $ | 28,065 | | | $ | — | | | $ | 28,065 | | | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | Crypto asset borrowings | 26 | | | (25) | | | 1 | | | | | 5,290 | | | 13,522 | | | 18,812 | | | | | Other payables denominated in crypto assets | 2,511 | | | — | | | 2,511 | | | | | 3,101 | | | — | | | 3,101 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total fair value of derivative assets and liabilities | $ | 30,602 | | | $ | (25) | | | $ | 30,577 | | | | | $ | 8,391 | | | $ | 13,522 | | | $ | 21,913 | | | |
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| Schedule of gains (losses) recorded in income |
Gains (losses) on derivative instruments recognized in the Condensed Consolidated Statements of Operations were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2024 | | Three Months Ended March 31, 2023 | | Derivatives | | Hedged Items | | Income Statement Impact(4) | | Derivatives | | Hedged Items | | Income Statement Impact | | Designated as hedging instrument | Crypto asset futures(1) | $ | — | | | $ | — | | | $ | — | | | $ | (43,116) | | | $ | 48,491 | | | $ | 5,375 | | Crypto asset borrowings(1) | — | | | — | | | — | | | (91,714) | | | 48,600 | | | (43,114) | | | | | | | | | | | | | | | Not designated as hedging instrument | | | | | | | | | | | | | Accounts receivable denominated in crypto assets(2) | 13,795 | | | — | | | 13,795 | | | 42,924 | | | — | | | 42,924 | | | | | | | | | | | | | | | | | | | | | | | | | | Crypto asset borrowings(3) | (95,914) | | | — | | | (95,914) | | | — | | | — | | | — | | Obligation to return loan collateral(3) | (31,186) | | | — | | | (31,186) | | | — | | | — | | | — | | Other payables denominated in crypto assets(1) | (1,721) | | | — | | | (1,721) | | | 439 | | | — | | | 439 | | | | | | | | | | | | | | | | | | | | | | | | | | Other(1) | — | | | — | | | — | | | (213) | | | — | | | (213) | | | | | | | | | | | | | | | Total | $ | (115,026) | | | $ | — | | | $ | (115,026) | | | $ | (91,680) | | | $ | 97,091 | | | $ | 5,411 | |
__________________ (1)Changes in fair value are recorded in Other operating expense (income), net in the Condensed Consolidated Statements of Operations. (2)Changes in fair value are recorded in Other (income) expense, net or Other operating expense (income), net in the Condensed Consolidated Statements of Operations depending on the nature of the receivable. (3)Changes in fair value are recorded in Transaction expense in the Condensed Consolidated Statements of Operations. (4)Though the Company has dedesignated crypto assets borrowed that previously qualified as fair value hedges, the impact of derivatives is naturally offset, at least in part, in the Condensed Consolidated Statements of Operations by the impact of associated naturally offsetting positions. See Quantitative and Qualitative Information about Market Risk in Part I, Item 3 of this Quarterly Report on Form 10-Q for more information.
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