Square is becoming a major player in the digital asset space…

Square just released its quarterly earnings report, and the numbers were quite impressive. And what jumped out at me most were the numbers related to the Cash App.  The Cash App was designed to be an alternative to a traditional bank account.  Consumers can receive their paychecks directly through the app and then use it to spend their money however they see fit. And this includes the ability to do peer-to-peer payments with other Cash App users. 

 A few years back, Square added the ability to buy and sell bitcoin through the Cash App. At the time, this was just a bonus feature. It wasn’t something many consumers used.  In fact, consumers only bought $166.5 million worth of bitcoin from Square in 2018. That represented only 5% of the company’s net revenue for the year. But that’s all changed.

We saw an absolute explosion in bitcoin purchases through the Cash App last year. A wave of buying started in the first quarter and persisted throughout the entire year. Square ultimately sold $4.57 billion worth of bitcoin in 2020. This accounted for 48% of Square’s net revenue for the year. Amazing.  What’s striking about this is we are talking almost exclusively about normal retail investors here. Hardcore and regular cryptocurrency traders use the established exchanges like Coinbase, Gemini, and Binance to do their trading. They aren’t using the Cash App. 

To me, this is almost like hearing about a stock tip in the barbershop. Retail investors typically come in at the end of a speculative rush, and heavy levels of retail investment often mark the top.  So I’m cautious on bitcoin right here in the short term. I suspect the digital asset has gone too far, too fast. It likely needs some time to cool off. That said, Square just bought an additional $170 million worth of bitcoin for its Treasury. 

This boosts its bitcoin exposure from 1% to 5% of total assets. This is a sign of things to come.  If we think out 5–10 years into the future, I expect corporations will hold a meaningful portion of their Treasury reserves in digital assets. This is something that only started to happen two quarters ago. These are still early days. We are at the beginning of a decade-long trend here.