After topping out at close to $50 a share, Square, Inc (NYSE:SQ) investors may want to re-evaluate the near-term upside potential in the payment platform company. The selling pressure on SQ stock may have shaken out the speculators and weak hands. What matters next is Square’s growth in light of bitcoin’s price rising.
Bitcoin and SQ Stock
In mid-November, Square added the ability for a select number of users to buy and sell bitcoin on Cash App. Its support for the cryptocurrency will set it apart from other payment platforms.
PayPal Holdings Inc (NASDAQ:PYPL) may have a lead over Square, due to its early entry in the sector. Visa Inc (NYSE:V) and MasterCard Inc (NYSE:
MA) generate enormous cash flow and do not need to support bitcoin to grow. But that narrow view on the currency may prove costly if Square succeeds with implementing bitcoin in its systems.
It would also pave the way for the company to accept other cryptocurrencies like Ethereum.
Since the bitcoin pilot, the market created an ETF that tracks cryptocurrencies. Demand for bitcoin will likely grow as its price skyrockets above $20,000. With a Bitcoin ETF inevitable, the higher liquidity will give SQ stock an edge. Square said that the company entered bitcoin not to validate the cryptocurrency but to embrace innovation.
In effect, it is encouraging its user base to use Square Cash to make and process payments. It is worth noticing that although bitcoin’s value rose in response to Square’s support, Square benefits from people realizing that it is here to facilitate payment transactions.
Shaking Up Ecosystem
Square’s willingness to accept bitcoin exposes the weakness in the banking system. Careful with each step and relying on traditional channels like credit cards, branches, and ATMs, Square is already showing its growth will accelerate as its appeal broadens to users and it accepts cryptocurrencies that the bank will not.
Risks of SQ Stock
The market’s enthusiasm for Square’s adding support in Bitcoin may follow with profit-taking. The company is only in the proof-of-concept phase. It must first decide that there’s value in supporting Bitcoin indefinitely.
Despite those risks, Square’s business (even without Bitcoin support) is processing electronic transactions for people, entrepreneurs, and small businesses. Square itself is not mining or relying on Bitcoins.
Inflection point
The surge in Bitcoin prices may have raised awareness for the need for an alternative currency to support transactions. Square built plenty of support tools to help businesses. This includes Square Capital, Register (a POS or Point of Sale solution), Square Cash App, and more.
The company is no longer only a hardware company. As investors realize Square is a growing services company, chances are good that SQ stock will reverse its drop and continue back on its climb higher.
Visa and MasterCard stock are both at yearly highs, probably in anticipation of transaction growth during the holiday season. PayPal already recovered from its dip between late-November and early December.
Takeaway
Square is supporting a user base that does not suit Visa or MasterCard as the supplier. IT takes a percentage of repayment on each transaction, so its risks in working with those who have a weak credit profile are low.
With the holidays coming up, transactions for all companies in the payment space will get a lift. Square will likely get the biggest bounce as more users install the app and use it to buy and sell goods.
Disclosure: The author does not own any shares in the companies mentioned. Follow the author on Twitter.
