Square Buys $50 Million worth of Bitcoin. Who’s next?
in Bitcoin (BTC)
Once in a while there is a story in the cryptocurrency ecosystem that stands out. A piece of news that can have an outsized impact not just on price but also on what the world thinks of digital assets. This is one of those stories.
The publicly-traded company Square (SQ) has bought $50 million worth of Bitcoin, approximately 4,709 coins in total. According to a press release, this represents about 1% of Square’s total assets.
Square is a financial services company, well known for its Cash App, which allows users to buy and sell Bitcoin from their phones easily. Square CEO Jack Dorsey (also the CEO of Twitter) is a noted BTC bull and played a crucial role in launching Square’s grant program. The grant program awards funding to developers who are working to improve the Bitcoin network.
When you put the pieces together this purchase makes a lot of sense. A company that profits from Bitcoin, led by a CEO who has been a Bitcoin advocate for years.
Although the BTC price is up on the news, the truth is that near term price action is inconsequential; the real gains will come from the long term effects of this purchase.
Square's Bitcoin Buy Matters
Square is a well-known publicly-traded company. The fact that Square has invested a part of their treasury into crypto imbues Bitcoin with a new level of legitimacy. Publicly traded companies don’t invest in shady assets with poor fundamentals.
Now that Square has invested in Bitcoin, it is much easier for other publicly traded companies to do the same. Whether it’s investing in Bitcoin or running a 4-minute mile, it’s hard to go first in almost any endeavor. However, once it’s been done, it becomes much easier to go second or third. At this point, the board of directors for any large company must be thinking: Square has done it, why shouldn’t we?
Of course Square wasn’t the first publicly-traded company to invest in Bitcoin; that honor goes to MicroStrategy. Unlike Square, MicroStrategy allocated nearly 100% of their balance sheet to Bitcoin. It was a tremendous strategic bet, spearheaded by CEO Michael Saylor, and that investment could pay off immensely so long as BTC continues to go up in price.
It took 11 years for the first publicly-traded company to invest in Bitcoin (MicroStrategy). After that, it took just 2 months for the next company to do the same (Square). How much longer until another company announces that they’re invested? What about 10 companies? 100 companies?
It won’t happen overnight. Publicly traded companies are bureaucracies and financial strategies do not change on a whim. However, over the course of the next six to twelve months we expect that it will become common to hear about companies turning their cash into BTC. Here’s why…
The Financial Backdrop
The backdrop against which these Bitcoin purchases are taking place is massive money printing by the United States Federal Reserve. Since the end of 2019, the Fed has nearly doubled its balance sheet. While asset prices have gone up, we’ve not seen significant inflation in the real economy. That, however, is almost bound to happen eventually.
When a government takes on more debt than it can pay off (130% debt to GDP is often cited as a line in the sand) there are only two options.
- The government defaults in real terms, i.e., the government refuses to pay its creditors
- The government defaults in nominal terms, I.e., the government inflates away the debt
This brings us back to Bitcoin, a hard asset that cannot be inflated away. Bitcoin has a set inflation schedule and that schedule cannot be controlled by anyone, since it’s written in the code.
This is what makes Bitcoin valuable and sets it apart from all of the other fiat currencies of the world. While the Federal Reserve, the ECB, the BOJ and others print money like it’s going out of style, Bitcoin will keep issuing 6.25 BTC per block and that’s it, no more and no less.
The Bitcoin News of the Month
Although the size of Square’s Bitcoin purchase is quite a bit less than MicroStrategy’s, that doesn’t matter. The fact that Square has decided to put BTC on its balance sheet is still a very, very bullish development for the cryptocurrency ecosystem.
- Each time a company buys Bitcoin, it legitimizes it, making it easier for other companies to buy into BTC
- Public companies buying Bitcoin are long term holders; they won’t be selling out on the next dip
- The more public companies holding Bitcoin, the more difficult it becomes for the United States government to “ban” Bitcoin
These are just a few of the reasons why this recent development is so important. There will undoubtedly be a lot more said in the coming days and weeks, as the crypto community discusses how bullish all of this is for Bitcoin.
Information provided is for informational purposes only and should not be considered financial advice. Investing in crypto assets is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Past performance is not indicative of future results.