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09 October 2020

Square's Bitcoin Investment Thesis

On Thursday, October 8th, the next number for bitcoin’s institutional bull market narrative bingo was drawn.

It started back in May when billionaire hedge fund pioneer Paul Tudor Jones predicted that bitcoin would be the “fastest horse” in an economy primed for inflation amidst unprecedented monetary expansion. Next, MicroStrategy CEO Michael Saylor yolo’d nearly all of the publicly traded company’s $500M balance sheet into BTC. It continued when Jack Dorsey’s Square announced a $50M investment into the digital currency.

__Square’s Bitcoin Investment Thesis __

As Fidelity Digital Asset’s Ria Bhutoria pointed out, Square’s rationale for the move differed from that of MicroStrategy, as well Paul Tudor Jones. Where each institutional predecessor was drawn to Bitcoin due to its potential to appreciate in value and its track record as a dependable store of value, Square’s motivations were more mission driven.

In the announcement, Square cited that it, “believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose.” Square CFO, Amrita Ahuja, added, “We believe that bitcoin has the potential to be a more ubiquitous currency in the future. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”

While the Paul Tudor Jones and MicroStrategy announcements came seemingly out of left field, Square’s was less of a surprise. Jack Dorsey is arguably Bitcoin’s most public proponent who’s long said he believes that the internet needs a native currency and that currency will be bitcoin. Square’s Cash App is one of the main ways for new users to first acquire bitcoin and Square Crypto exists to support Bitcoin and open-source initiatives.

What was interesting about Square’s move was that along with the announcement, Jack released something for the benefit of corporate treasurers and CFO’s around the world. Jack’s Blueprint

Shortly after Square’s announcement, Dorsey tweeted out a white-paper to his 4.7M followers to, “clearly articulate the process behind the execution of our purchase as others consider similar moves.” The document lays out how Square executed the trade and custodied the BTC, as well as provides resources for insuring and accounting for the asset.

Like any good crypto-resource, it was punctuated with, “NOT INVESTMENT ADVICE.”

__Broader Implications __

As TBI and Watkins each commented immediately following the news, this is a big deal, particularly coming from a company of Square’s caliber. While MicroStrategy’s $425M allocation was orders of magnitude larger than Square’s, critics were quick to point out MSTR’s lackluster performance over the last five years, calling it a desperation move.

Square on the other hand, is one of the most respected tech companies in the world, whose stock is trading at all-time highs and has more than 10x’d since its 2015 IPO. Jack Dorsey is one of the world’s most reputable CEOs whose lead will be easier for other CEOs/CFOs to follow (not to mention they have a clean and simple blueprint to do it).

Square’s allocation also clocks in at a meme-friendly 1% of their balance sheet. As any Bitcoin hopium addict knows, a 1% allocation from all institutional investors is the recipe for $50,000 BTC.

In an environment where company treasuries will likely lose over 2% to inflation due to the Fed’s money printer, in a chaotic year in which Bitcoin has outperformed virtually every other macro asset class, is that so crazy?

Time will tell.

-CD

*Article originally appeared in the Messari Daily Newsletter: Subscribe *

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