A few weeks ago, Square’s Cash Application began allowing users to buy, sell, and hold the crypto-currency Bitcoin. Square’s Cash App, which is generally used to transfer money, has now unofficially endorsed the crypto-currency with what is essentially a trial offering to a limited number of Cash App customers. It should be noted that Square has allowed customers to use Bitcoin as a form of payment for nearly two years now, but customers needed to purchase their Bitcoin’s through other methods in the past.
In a statement, a Square spokesperson said, “We’re always listening to our customers, and we’ve found that they are interested in using the Cash App to buy Bitcoin. We’re exploring how Square can make this experience faster and easier, and have rolled out this feature to a small number of Cash App customers. We believe cryptocurrency can greatly impact the ability of individuals to participate in the global financial system and we’re excited to learn more here.”
Square’s Chief Executive Officer Jack Dorsey is a believer in crypto-currencies and the blockchain technology they are built on. He recently told an interviewer that blockchain is “the next big unlock.” The interview went further, and Dorsey disclosed that friends and family had asked him how they could buy Bitcoin, which may be an insight into why he has moved Square in its current direction.
It is likely that Square believes this is a chance to increase revenue while offering customers an opportunity they are looking for in the marketplace. One analyst from Credit Suisse believes Square’s move could add up 10 million Bitcoin buyers in the next two years and that could provide an additional $30 million in revenue for Square. The analyst believes Square could get an average fee of 1.5% for Bitcoin transactions.
It will be interesting to see if PayPal’s Venmo service follows suit and offers a similar service in the future. Many believe that with more companies endorsing crypto-currencies, the likely-hood that the currencies themselves catch on with the masses increases. But, the other side of that coin is that while these currencies gain more exposure to the mass markets, they also draw more attention from regulators and shorten the timeframe in which governments will need to decide on whether or not to allow these new financial instruments.
From a shareholder’s perceptive this seems like it may be a short-term boost, but at the companies peril in the long-term.
Bitcoin and other crypto-currencies have seen extremely volatile price movements, but continue to roll higher in an unprecedented fashion. Bitcoin is up more than 700% year-to-date, despite some massive falls and big-name investors calling the crypto-currency a fraud. This seemingly unstoppable train has attracted the attention of small retail investors and the non-investing general public.
The problem comes as the masses rush into these high-risk investments without fully understanding what they are buying and the possible pitfalls that lay ahead. While the comparison has been made a thousand times, the biggest similarity between the housing market collapse and the rise of crypto-currencies is the large number of ‘investors’ rushing in to make a quick buck, while perhaps not fully understanding the risks associated with their actions.
Before Square made its recent change, Jack Dorsey told The Verge’s Lauren Goode that people had been asking him how they could buy Bitcoin. It went like this, “I said why do you want to buy Bitcoin, and they said, I heard it was fast, easy way to make money.” That kind of thinking is very reminiscent of the housing boom or the dot.com bubble.
Furthermore, this all tells me that these so-called investors don’t understand what they are getting themselves tied up with; if someone is truly knowledgeable about a topic, they know how to get what they want.
When a company like Square, or possibly PayPal in the future, give people easy access to making these risky investments, they may be doing their customers a disservice. While this may be what customers want today, if Bitcoin blows up and customers lose all their money, they may associate the Square Cash App or Venmo with bad memories and no longer want to use them moving forward.
Square is trying to make a little extra money by allowing customers to partake in what could be reckless investment behavior and this experiment could end up costing both parties a lot of money in the long run.
Disclosure: This contributor held long positions positions in Square and PayPal at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.