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Square’s Surging Bitcoin Business Will Restore Confidence in Crypto

Last Updated March 4, 2021 2:54 PM
Joseph Young
Last Updated March 4, 2021 2:54 PM

Square, the $31 billion payments giant, processed over $166 million in Bitcoin purchases throughout 2018.

Square Bitcoin Revenue Eclipses $50 Million in Q4

According to the firm’s Q4 shareholder letter , Square processed the sale of $52.4 million in Bitcoin in the fourth quarter of last year, up nearly two-fold from its previous quarter.

The relatively high Bitcoin sales figure from Square follows an annual report released by Grayscale, a subsidiary of Digital Currency Group, which revealed that $359.5 million was poured into Grayscale’s crypto investment products by accredited investors during 2018.

Two-thirds of the $359.5 million, around $237.5 million, came from institutional investors, suggesting that both retail and institutional investors have begun accumulating Bitcoin and other crypto assets since the latter half of 2018.

Increase in Retail Demand is Crucial For Bitcoin Recovery

Often, Bitcoin’s reported daily trading volume numbers in the billions. As of February 28, CoinMarketCap estimates the daily volume of the dominant cryptocurrency to be around $8 billion.

The core issue in evaluating the demand from retail investors for Bitcoin based on the reported volume of the asset is the inflated daily volumes of major cryptocurrency exchanges.

As shown in the data presented by analysts at Blockchain Transparency Institute, apart from several established exchanges in the likes of Binance and Bitfinex, there exists a massive discrepancy in the reported and actual volume of cryptocurrency exchanges to the tune of hundreds of millions of dollars.

“We have discovered 4 different bot strategies which are used to inflate exchange volume numbers. Some of these bots appear to be set to different trading pairs depending on the time of day,” the Blockchain Transparency Institute researchers wrote.

bitcoin exchange volume
Researchers allege that many crypto exchanges fake trading volumes. | Source: Blockchain Transparency Institute

As such, accredited investors turn to market data provided by strictly regulated over-the-counter (OTC) markets or companies like Square and Grayscale.

From the two U.S.-based companies alone, in the entirety of 2018, more than $288 million was invested in the cryptocurrency market by retail investors, primarily in Bitcoin.

Su Zhu, the CEO of Three Arrows Capital, previously emphasized that an additional $6 billion is sitting on the sidelines to be reallocated to the asset class in vehicles like stablecoins and exchanges.

The high crypto volumes coming from U.S.-based companies as well as a large amount of capital still stored within the infrastructure of the cryptocurrency sector suggest that the demand for the asset class from retail investors remains relatively high.

In 2018, Grayscale revealed that it secured a record year in terms of the inflow of capital into its cryptocurrency investment vehicles.

institutional bitcoin investment
Grayscale investors are still primarily pouring their capital into Bitcoin.

The Grayscale team said :

“Despite a deceleration of investment quarter-over-quarter, new inflows across Grayscale products reached $30.1 million in Q4, making 2018 a record year for our business.”

“The full year inflows of $359.5 million were nearly 3X those recorded during the 2017 digital asset bull market and nearly 2X the inflows from the previous four years combined (2014-2017), a clear sign that long-term investors remain bullish independent of the recent price action.”

Square, Grayscale, and Other Companies Are in Crypto for the Long Run

Companies like Square are in Bitcoin for the long haul – not just a quick buck. | Source: REUTERS / Dado Ruvic

Jack Dorsey, the CEO of Square and Twitter, has been vocal in his support for Bitcoin.

He firmly emphasized that the company is not interested in integrating any other crypto asset and will solely focus on Bitcoin development and is currently considering the integration of the Lightning Network.

As a strategy to secure millennial users and a niche market, the integration of BTC by Square’s Cash App has been successful, and with that momentum, the platform has been able to evolve into one of the major digital payments applications in the U.S. market.

The long-term commitment of companies like Square to the cryptocurrency sector may strengthen the confidence of retail investors in the asset class, which dropped drastically after an 85 percent correction in crypto prices.