Don't Read Too Much Into Square's BTC Purchase

October 13, 2020 06:22 PM
Crypto Story of Day

Crypto Story of Day




Crypto was positive this morning with bitcoin (BTC) holding last week's decisive break above USD 11,000. 10-day historical volatility on BTC, however, remains in the range of 25%.

Crypto Story of the Day

Square's recent decision to buy USD 50 million equivalent Of BTC for treasury drew plenty of media focus. While there remains an outside chance the move encourages others, we believe the attention was for the most part unwarranted as Square is arguably the most committed publicly traded company to BTC.

In a post in the investor relations segment of their website, Square announced that they had purchased 4,709 BTC at an aggregate purchase price of USD 50 million. The announcement was made in what the company refers to as a “Bitcoin Investment Whitepaper,” which is essentially a 2-pager. Square bought the BTC by TWAPing over a 24-hour period with an OTC dealer which they have already integrated as a part of their CashApp.

We've written extensively about Square's participation in crypto. Their CashApp BTC purchase and sale function has become the company's primary revenue driver (though we have noted we feel as though such revenues are overstated historically) and CEO Jack Dorsey has been a visible and vocal supporter of BTC and crypto in general for years. Square’s shares rallied marginally on the announcement and did coincide with an uptick in the crypto market and BTC price.

The move for Square seems almost natural in the context of MicroStrategy's decision to make BTC their “primary treasury asset.” While we have referred to Square as arguably the most committed publicly-traded company to BTC, that moniker may actually belong to MicroStrategy who invested nearly USD 500 million into BTC, equivalent to just over 30% of their market cap. By comparison, Square's purchase seems relatively conservative with a USD 50 million investment less than 1% of the Square market cap. The bullish read through on the story would be that it encourages other firms to make the same decision as Square’s, however, this would be a highly speculative thesis. Ultimately, Square’s  commitment to crypto is an incremental positive for the space but last week's announcement sees more akin to headline chasing than an identifiable shift in strategy.

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