Stock Block: Reshaping the Future (NYSE: SQ)

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onur dongel

Summary of the thesis

As the US financial system continues to be in distress, I see Block (NYSE:SQ) as a possible winner from this situation.

Block embodies some of the best aspects of decentralized finance and has a well-known crypto orientation.

The public yearns for a safe and reliable alternative to traditional banking services, and Block has both the reach and the product to make it happen.

Since my last update on Block over a year ago, the company has had another solid year of growth, but SQ’s share price is down over 30%, largely due to the recent report on short sellers.

Without going into the details of the report, I find that, as is often the case in these situations, many of the claims are exaggerated and do not change the long-term appeal of the business, especially when we look at this investment from a “crypto perspective”.

In this article, I will focus on how Block could benefit massively in the future due to its various crypto-enabled investments and services.

Block the last results

Let’s start by looking at Blocks’ latest results for 2022.

Block Highlights (Investor Presentation)

Squares revenue primarily comes from two main sources: block revenue and Cash App revenue.

Block’s revenue comes from transaction fees on its payment processing and subscription fees charged to sellers who use the Blocks payment platform. The company also offers various banking and loan-related services.

Cash App’s revenue comes mainly from the fees charged to users when using the Cash App card or when buying Bitcoin. Block is also making money through its Buy Now Pay Later program.

Despite strong revenue growth, the company failed to significantly increase adjusted EBITDA. This can be attributed in part to declines in bitcoin holdings and increased marketing costs associated with its BNPL product.

Nonetheless, I believe SQ will strongly benefit from the upcoming crypto bull market and has plenty of room for expansion in terms of increasing user profitability.

Block is Crypto First

One of the best things about Block is that it has made it clear to users and investors that it is a crypto-friendly company. This is mainly due to the fact that Jack Dorsey, the CEO, is a firm believer in cryptocurrencies.

Block has a lot more exposure to crypto and bitcoin than people realize. Besides being one of the leading Bitcoin buy/sell platforms, SQ has a Bitcoin hardware wallet in the works. The company aims to make self-care more accessible to everyone, a noble and hopefully lucrative endeavor.

Block also recently talked about a custom BTC mining kit.

Block, Inc. thinks so and developers can build better Bitcoin mining rigs. That’s why it plans to create a mining development kit, or MDK, it said on Tuesday.

Source: decrypt

Although Block also produces ASIC graphics cards, it is important to note that this initiative is primarily aimed at creating a decentralized mining system by empowering people rather than making profits.

The key thing to understand here is that SQ is positioning itself for a Bitcoin-centric future. So what might that future look like?

What can we expect moving forward?

With the current financial turmoil, a company like SQ willing to integrate Bitcoin into its operations has more potential than ever.

Current issues created by rising bond yields are not limited to Silicon Valley Bank (OTC: SIVBQ). Much of the US financial system is in a similar situation. In fact, Moodys has already downgraded its US banking system rating. Eventually, the only way out of this situation will be to monetize the losses of the financial systems, which could lead to a significant devaluation of the dollar in this already inflationary environment.

This is no longer speculation, but reality, with QE back on the table and a flight to Bitcoin already underway. Most US ramps to crypto have been shut down, such as Silvergate (SI), Signature (OTC:SBNY) and SVB, and more are under attack, with Coinbase (COIN) being threatened with fines by the SEC last week.

SQ not only remains one of the last ways to get cash in bitcoin, but could also become a big player in enabling the use of bitcoin in real day-to-day economic transactions.

SQ is already a well-established supplier of hardware and software for enterprise sales systems. On the other hand, it has a strong consumer presence through Cash App, with over 50 million users, and it has already integrated a way for users to buy Bitcoin. Add to that a hardware wallet, which will allow completely secure storage of Bitcoin, and you have all the right ingredients for mass Bitcoin adoption.

From one simple location, users could acquire Bitcoin, transact almost instantly through the Lightning Network, and even store their savings in a secure wallet. This certainly seems like a big improvement over holding bank deposits susceptible to bank runs and denominated in a currency of infinite supply.

Technical analysis

That said, the SQ technical chart suggests that we could still see a deeper correction in the medium term.

TA block (work of authorship)

Ultimately, I see the SQ rally turned into $300 as a completed impulse in a large wave I, and that now puts us in wave II, of which we have only completed the first left down. Wave A bounced off exactly the 50% retracement at $49. We are currently in a B wave bounce, although with the current sell off I see a pre-market due to the short report, this correction may be over soon.

Once this wave B is over, a final sell off within the 61.8% retracement at $32 should ensue.

To take with

In conclusion, I am encouraged by Block and Jack Dorsey’s commitment to strengthening crypto payments. Additionally, the company has a strong business model with plenty of room for growth, and I’m adding that to the LT crypto stock portfolio.

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