What does Bitcoin mean for Block?

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Following in the footsteps of Meta Platforms (the company formerly known as Facebook), Square recently changed its name to Block (NYSE: SQ) to highlight the company’s new strategic direction.

Not only does the name of this burgeoning fintech company implicitly refer to blockchain technology, which is the basis of cryptocurrencies, but the company’s founder and CEO, Jack Dorsey, was quick to express his support for Bitcoin (CRYPTO: BTC) in particular. He thinks it may be the native currency of the Internet.

Let’s see what exactly the world’s most valuable cryptocurrency means for Block.

Image source: Getty Images.

Block and Bitcoin today

Bitcoin is already an important part of Block’s business. Not only did the company buy $ 50 million worth of Bitcoin in the fourth quarter of 2020 and an additional $ 170 million in the first quarter of last year, but Block is also offering ways for individuals to interact with the cryptocurrency.

With Cash App, which is Block’s personal finance tool, users can buy, sell, send and receive Bitcoin. In the last quarter, Block generated gross profit of $ 42 million from trading Bitcoin. That figure grew from just $ 2 million two years ago, and it seems likely that it will increase in the future as Bitcoin becomes more mainstream. By comparison, Block’s total gross profit for the most recent quarter was $ 1.1 billion.

Competitors PayPal and Robinhood Markets allow customers to trade not only Bitcoin, but also Bitcoin Cash, Ethereum, and Litecoin. Block could have already added these cryptocurrencies to Cash App, but that’s not the case, simply because the focus is only on Bitcoin.

Block’s importance to the financial lives of its users will likely increase over time as customers adopt more of its growing menu of products and services. Letting Cash App customers buy things with Bitcoin and allowing sellers to accept Bitcoin as a payment method are two features that will likely be introduced in the near future.

Building the infrastructure for Bitcoin to thrive

Two lesser-known segments of Block that demonstrate Dorsey’s ultimate vision for Bitcoin and his business are TBD and Spiral. TBD launched in the second quarter of 2021 and is an open development platform designed to make it easy to build Decentralized Finance (DeFi) applications. These are usually built on a programmable blockchain that enables smart contracts such as Ethereum. TBD’s goal is to create DeFi applications, such as a decentralized exchange, for Bitcoin.

The Spiral initiative, originally called Square Crypto, was launched in 2019 with the stated goal of “improving the Bitcoin ecosystem by contributing to free and open source projects.” Projects like the Lightning SDK and the Bitcoin SDK attempt to improve Bitcoin’s user experience, which can be intimidating and pose a serious barrier to mass adoption.

Dorsey said he believes Bitcoin has the potential to change the world and sees cryptocurrency as the most important thing to work on in his lifetime. The development of new companies like TBD and Spiral, as well as increased Bitcoin functionality for Block’s merchant and retail customer base, will help lay the groundwork for greater innovation in the years to come. This potential for major breakthroughs is what makes the stock attractive to long-term investors.

It’s probably no exaggeration to say that Bitcoin is literally Block’s future. For the shareholders of this thriving fintech company, accepting this fact is essential to understanding the action and its direction.

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* Returns of the portfolio advisor as of December 16, 2021

Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Neil Patel owns Bitcoin, Block, Inc., Ethereum, and Meta Platforms, Inc. The Motley Fool owns and recommends Bitcoin, Block, Inc., Ethereum, Meta Platforms, Inc. and PayPal Holdings. The Motley Fool recommends the following options: $ 75 long calls in January 2022 to PayPal Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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