Bitcoin was trading below $1000 at the beginning of 2017. It looks like it’s about to hit $10,000. It could happen today. That’s a 1000% increase in 11 months.
We know that SQ recently started a trial that allows users of its CashApp to buy and sell Bitcoin. This means that they are allow to trade Bitcoin.
Here’s what this Business Insider article reads:
Square, the online payments company founded by Twitter’s Jack Dorsey, has been running a trial that allows users of its Cash App to buy and sell bitcoin.
And both Wall Street and the crypto world thinks the company stands a good chance at breaking into the nascent digital coin market.
Square added the feature to Cash, a rival to Venmo, because users asked for it, the company said in a statement. It said it is still trying to figure out how to make it “faster and easier” and is only offering it to a “small number” of Cash users. A full roll-out of the feature would put Square up against cryptocurrency exchanges such as Coinbase and Gemini.
The article went on to say this:
Crypto-fanatics took to Twitter over the weekend to praise the new product, adding that it poses a big threat to existing bitcoin trading platforms.
Jack Mallers, one user of the app, said on Twitter he deposited $20 from his debit card into his Cash App and was able to buy bitcoin in 30 seconds. Josh Olszewicz, a bitcoin trader, told Business Insider Square stands to “eat Coinbase’s lunch.”
“The big theme is being friction-less as much as possible,” he said. “With Square, on-boarding [takes] seconds.”
Coinbase has allowed users to buy bitcoin instantly with their debits since August 2016, but they charge 3.99% for the service. Square, on the other hand, hasn’t been charging users in the trial. Of course, it is still early days, with at least one Wall Street firm forecasting fees of 1.5% in the future.
Square’s brand name could also give it a leg up over existing cryptocurrency exchanges, according to Kirsten Morin, senior investment manager of global venture capital at Aberdeen Standard Investments.
So it looks like SQ is for now allowing traders to trade Bitcoin.
I think that SQ is probably adding fuel to the Bitcoin frenzy fire. Since SQ’s announcement, Bitcoin’s price has risen about 25%…in the past week.
Is Bitcoin like tulip’s? Is it a big bubble? Has SQ caused an acceleration in Bitcoin’s price? And has Bitcoin’s increase in price along with SQ’s experiment contributed to SQ recent surge in stock price? How much of SQ’s stock price increase was fueled by Bitcoin and SQ’s experiment to trade it? Probably some.
Now let’s ask a different question. Is Bitcoin going to be increasing useful for buying and selling goods as opposed to just trading the currency? If Bitcoin does become more used for buy goods, then will SQ’s CashApp users benefit (i.e. will CashApp users be more easily able to use Bitcoin to buy stuff?)? Will SQ merchants benefit (i.e. people will buy more stuff from SQ merchants)? And will SQ benefit by attracting more people to use CashApp and become SQ merchants? This last question comes to the crux of why SQ might be experimenting with Bitcoin trading…is this more about Bitcoin acceptance for their merchants? If so, then is this going to be sustainable…will Bitcoin be around and will a significant number of people who hold Bitcoin want to spend it and not just trade it? I think we don’t know the answer…SQ doesn’t know the answer which is why it is an experiment. But if Sq is trying something that its competition is not trying then if it becomes a big deal then SQ will have a leg up and be able to attract more CashApp users and more merchants tot he Square platform.
So what about SQ as an investment. I have a large position in SQ (still 12% of my portfolio after the recent drop). I also own Jan2019 $20 and $30 calls which together amount to 0.3 shares per share than I own (again 12% of my portfolio). I didn’t any sell into the recent price surge and I didn’t buy any after the drop. The reason is that I like SQ long term and I have no idea what the stock is going to do in the short term. It is possible that SQ’s near term stock price movements are more tethered to the price of Bitcoin. Maybe. Maybe not but I think this is more the case now. Bitcoin could go to $20,000 or it could go to $5000. I think if Bitcoin’s surge continues then we will see SQ hit new highs. I have no idea where Bitcoin will go so I don’t want to trade SQ right now. Is Bitcoin a tulip or is SQ helping to legitimize Bitcoin? If Bitcoin becomes a more legitimate currency for buy goods than just a trade then it will be around longer. Even so, I have a hard time believe that Bitcoin’s price surge is sustainable. It will probably see a very large correction in price. When? Nobody really knows. But I will say this: if Bitcoin’s surge continues and SQ’s stock price quickly rises to around $60 then I will probably take the opportunity to trim my SQ position.