Thanks to bitcoin’s mercurial ascent, we not only see bitcoin articles everywhere, we also see bitcoin alternatives hawked. These investments are traditional stocks that have strong growth potential but far less downside risk. Invariably, the picks are disappointing. But if I had to choose a worthy substitute, I’d go for Square Inc (NYSE:SQ). SQ stock is no bitcoin, but the same fundamentals drive them both.
After all, the SQ stock price represents the market value of an actual company. Bitcoin is a digital currency. Some highly regarded analysts consider cryptocurrencies as nothing more than clever shams. When I refer to fundamentals, though, I mean specifically their purpose for existence. From that point of view, Square and bitcoin have extraordinary similarities.
As InvestorPlace feature writer James Brumley neatly summarizes, “Square is the outfit behind the small, white, square-shaped devices that attach to a smartphone and turn it into a credit card reader. Small businesses like hairdressers and electricians love them, as they’re (1) mobile and (2) make taking credit card payments affordable.”
Square allows small businesses to compete on a more even playing field. To put it bluntly, Square allows small businesses to give the “magic finger” to Mastercard Inc (NYSE:MA), Visa Inc (NYSE:V), and American Express Company (NYSE:AXP), all while accepting their business. Without Square, small firms would have to suck it up, or go cash only.
If you’ve wondered why the SQ stock price jumped 187% in a little over two years, now you know.
In the same vein, bitcoin allows everyday investors to participate in openly available and robust financial markets. Fund managers are losing their fecal matter over bitcoin because they’re not raking in commissions from it.
Like SQ, bitcoin makes its underlying industry (investing) cheaper.
SQ Stock Is Set Up for the Long Haul
Of course, the reason I compare SQ stock to bitcoin is last month’s announcement that Square will test bitcoin accessibility with its Cash payment app. Initially, the news brought plenty of excitement, driving shares briefly towards $50.
Unfortunately, several Wall Street players saw Square’s announcement as a gimmick. More importantly, profitable traders voted with their wallets, electing to take some gains off the table. Now, the SQ stock price more or less stands where it did prior to the bitcoin hoopla.
Here’s the deal: I’m pretty sure Square CEO Jack Dorsey — who also leads Twitter Inc (NYSE:TWTR) — deliberately made the announcement as a marketing gimmick. If you think about it, it’s a genius move. Everyone is talking about bitcoin right now, even if they don’t know what it is, how to buy it, or whether or not it’s legal to own.
But piggybacking the marketability of the world’s most popular cryptocurrency is just the beginning. Unlike other pundits who view the move as merely playing into trends, I believe Dorsey has deeper goals in mind. Over the next few years, I wouldn’t be surprised if Square integrates multiple cryptocurrencies into its payment platform.
As great as it is, bitcoin has a scalability limitation. Its founder or founders never imagined the immense volume we see today. I agree with my colleague Dana Blankenhorn that bitcoin has become too impractical as a bona fide currency.
Where I start to disagree with the dedicated anti-bitcoin crowd is the “fatalism conflation.” Bitcoin may have failed as a practical currency, but many other alternatives exist. Dorsey likely recognizes this dynamic, and he has shifted his strategy accordingly.
SQ Stock Can Endure Volatility
One of the reasons why cryptocurrencies are so volatile is that they’re backed by a new and disruptive technology. Proponents have a vested interest in their potential success, and opponents have a vested interest in their potential failure. In the long run, I’m confident that cryptocurrencies represent the next step in the monetary game. The volatility sucks, but that’s the price for admission.
I can make the same argument about the SQ stock price. A lot of folks are making a big deal about the recent surge and collapse. This is just growing pains for a company that may very well change the small business landscape. Combine that with the cryptocurrency’s inherently disruptive nature, and you have the recipe for sparking a market revolution.
It may take some time for SQ stock to rise to its full potential. When it does, traders will look back at these levels as a bargain. There’s only a handful of investments that can match bitcoin’s paradigm-altering platform, and Square is one of them.
As of this writing, Josh Enomoto is long bitcoin.
