Crypto price gains, not operations, drove third-quarter profit at Strategy and Coinbase

Strategy Inc (Nasdaq: MSTR) reported $20.91 billion of operating income for the third quarter and Coinbase Global (Nasdaq: COIN) reported $61.7 million, yet both companies' largest profit line was the change in the value of crypto they hold, according to their filings on October 29.

What happened

Strategy, which describes itself as the first bitcoin treasury company, said its third-quarter results included a $20.91 billion gain on digital assets, against $3.89 billion a year earlier. Net income was $19.53 billion, and net income attributable to common stockholders was $19.12 billion after $419.6 million of preferred dividends. Total revenues were $125.4 million, down 3% from a year earlier.

Andrew Kang, Strategy's chief financial officer, said in the release that "Q3 operating income of $21 billion was the largest ever in Strategy’s history." Coinbase recorded income tax of $105.2 million on its $823.9 million of pre-tax income, an effective rate of 12.8%, according to its filing.

Coinbase's quarterly report shows $715.0 million of gains on crypto assets held for investment, and net income of $718.7 million. Its operating income was $61.7 million. As FinanceInTime reported on October 30, the company's filing says the gains were primarily due to fair value remeasurement of these assets, mainly bitcoin and ether.

The two companies are very different in size and purpose. Strategy held about 848,517 bitcoin on October 25 with a market value of $68.90 billion. Coinbase's crypto investment portfolio is a small part of a trading, custody and stablecoin business; its balance sheet slide lists $2.4 billion in crypto and marketable investments. But the pattern in the third quarter was the same: a quarter in which crypto prices rose lifted reported profit far above what the operating businesses earned.

The numbers behind it

Strategy's gain on digital assets was about 167 times (computed) its quarterly revenue of $125.4 million. At Coinbase, the $715.0 million gain was 11.6 times (computed) its $61.7 million of operating income. At Coinbase the gain is a fair value remeasurement; Strategy reports its figure as a gain on digital assets. Neither is cash from operations.

Strategy reported that the price of its common stock rose 76% in the third quarter against a 43% rise in the bitcoin price. Coinbase said total crypto market capitalization was up 37% from the second quarter, with prices rebounding in September after a quarter of low volatility and falling trading volumes.

The profit also reverses a pattern at Coinbase. The company reported net losses of $394 million in the first quarter and $359 million in the second, and the nine-month result is a net loss of $34.9 million.

What Strategy pays for its bitcoin

Strategy's results show a second cost that does not appear in a quarter of rising prices: the dividends on the preferred stock it sells to fund bitcoin purchases. Preferred dividends were $419.6 million in the third quarter, three times (computed) the $139.9 million of a year earlier, and 3.35 times (computed) the quarter's revenue.

Its STRC preferred stock pays a rate that the company raised from 11.00% in January to 12.00% in July, and it said it maintained the rate at 12.00% to support the stock trading near its $100 per share stated amount. The stock traded below that level. Strategy repurchased 20,980,508 STRC shares year to date for about $2.04 billion, an average of $97.39 per share, a discount of 2.6% (computed) to the stated amount. About $956.7 million of the $3.0 billion repurchase authorization remains.

To pay for dividends, the company holds a reserve. It said its USD assets were $5.07 billion, which it describes as about 3.4 years of coverage for preferred dividends and interest on its debt. It also said it had sold about $431.8 million of bitcoin year to date to fund part of its preferred dividends and STRC buybacks.

The per-share picture

More bitcoin does not mean more bitcoin per share. Strategy's holdings are up 26% year to date, but its own KPI, BTC Yield, which measures the change in bitcoin per assumed diluted share, was negative 3.7% year to date. The company defines BTC Gain, the same change in bitcoin terms, as negative 24,947 bitcoin. Strategy cautions that these measures are not financial performance, valuation or liquidity measures. In the third quarter it raised $5.41 billion of net proceeds from selling common stock under its at-the-market program, and none from preferred stock.

The release also shows how the holdings sit against cost. The average cost per bitcoin was about $75,446, against a market price of about $81,200 on October 23, 7.6% higher (computed). The $64.02 billion cost basis compares with the $68.90 billion market value, a difference of $4.88 billion (computed). The release does not reconcile that difference with the quarter's $20.91 billion gain, which was measured over a different period.

What to watch

Coinbase gave fourth-quarter guidance of $550-$630 million in subscription and services revenue and said transaction revenue was about $165 million for the period through October 25. Its Deribit integration was completed in October, and it expects some near-term volatility in volumes.

Strategy said STRC moves to daily dividends starting November 1, 2026, and STRF, STRK and STRD from January 1, 2027. Chief Financial Officer Andrew Kang steps down effective November 5, 2026, with Reza Virasteh taking the role on January 1, 2027.

Both results depend on the price of bitcoin and other crypto assets at each period's end. The filings do not say what drives that price, and this analysis does not either. Rising prices raised reported profit in the third quarter at both companies.