Fintech giant Square (NYSE:SQ) has allowed its Cash App customers to buy and sell bitcoin for some time now, and has some high-tech cryptocurrency initiatives underway. But Square just took its relationship with the leading cryptocurrency to the next level by purchasing $50 million worth of bitcoin as an investment. Here are the thoughts of Motley Fool analyst Jason Moser and Fool.com contributor Matthew Frankel, and what it might mean for shareholders.
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Jason Moser: All right. Well, let's talk a little bit about Square, because this is funny, because we didn't plan this, but this really did turn out to be, kind of, a War on Cash themed show here. You know, we've got PayPal (NASDAQ:PYPL) with the Visa (NYSE:V) credit card, now we're talking about Square. This is a little bit of a different story here, and I want you to convince me this is a big deal because I'm not really sure that it is. But the fact of the matter is that Square has taken its relationship, its belief in bitcoin, to the next level. Not a surprise. We know Jack Dorsey is a big crypto evangelist, we know he believes in that and it's a way to democratize finance. But now, Square is going to hold, I think it's $50 million worth of bitcoin on their balance sheet. Is this really a big deal?
Matthew Frankel: Meh, kind of. I'm going to make a very unpopular statement right now. Square's interest in bitcoin is my least favorite part of the company.
Moser: [laughs] I think I'd agree with you there. I think I actually agree with you there.
Frankel: I mean, as an investor, I mean, I like to say that I bought Square before it was cool to buy Square. I got it right after the IPO when everyone hated the idea of it going to go anywhere. But anyway, the $50 million of bitcoin, it's roughly 1% of Square's total assets. So, this isn't an insignificant amount of money that they're stashing in bitcoin, I mean, this is money that was sitting on in cash anyway on their balance sheet, so it's just kind of moving from -- it would be the same, in my mind right now, if they said we're going to hold $50 million of euro on the balance sheet. But it does kind of add a next step to their interest in bitcoin. We know that Square allowed people to start buying bitcoin through the Cash App in 2018. Since then, they launched a Square Crypto Division that, kind of, focuses on solving bitcoin related issues. They're participating in a few other nonprofit initiatives when it comes to crypto. But it's always been more of a business function, not that Square was directly investing in it. You know, they were letting their users buy bitcoin, they were trying to figure out how best to use cryptocurrency to solve future problems, they didn't actually think of it as an investment.
This is maybe the biggest investor I know of, or the biggest company I know of, that's actually calling bitcoin an investment.
Moser: So, I wonder, you know, I think about several years back when bitcoin really was just starting to gain headlines here. We're talking about the big challenges for bitcoin between the two big challenges, as a medium of exchange and a store of value. And you could see there were hurdles to clear on both sides. Now, I think that the medium of exchange hurdle has -- I'm still not convinced, I mean, I don't know the mass majority of people out there are using bitcoin to buy anything. It does seem to me, though, that it's starting to make its case a little bit more as a store of value. This, to me, for Square, strikes me as more of a hedging strategy than maybe anything else. And maybe it's a way to gain a little bit more headlines. Maybe it's a way for Jack Dorsey to get folks to believe a little bit more in the merits, the potential of cryptocurrency, you know, bitcoin and whatnot. So, maybe it's a multi-serving move there. But it does seem to me, at least, it seems to bolster the argument that bitcoin does hold a place in that store of value argument.
Frankel: Yeah. And I would say over the last year or so, the price of bitcoin has stabilized significantly. I don't know if you remember a couple of years ago, when you know, one month it would be worth $4,000, the next month it'll be $20,000, the next month it will be $3,000. Who wants to store value in something that's going to do that? But bitcoin has been roughly $10,000 for a pretty long time now. I mean, give or take. I mean, it fluctuates just like any type of currency. But now it's behaving more like a currency rather than just a crazy speculative asset. So, in that regard I could also say it's more of a store of value. That's why I say, right now, this move to put $50 million in bitcoin, to me, isn't that much different than putting it in euro or something like that from a financial point-of-view, because now the value has become a whole lot more predictable.
Jason Moser owns shares of PayPal Holdings, Square, and Visa. Matthew Frankel, CFP owns shares of Square and has the following options: short September 2022 $155 calls on Square. The Motley Fool owns shares of and recommends PayPal Holdings, Square, and Visa and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.