Block Stock: Reshaping The Future (NYSE:SQ)

Summary of the assignment

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 briefing.

The public is longing for a safe and reliable alternative to traditional banking, and Block has both the reach and the product to make this happen.

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

Without going into detail about the report, I find that, as is often the case in these situations, many of the claims are exaggerated and they do not change the company’s long-term appeal, especially when looking at this investment from a “crypto perspective”.

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

Block’s latest results

Let’s start by reviewing Block’s latest results for 2022.

Square’s revenue comes primarily from two main sources: “Blocking Revenue” and “Cash App Earnings”.

Block revenue comes from payment processing transaction fees and subscription fees charged to merchants using Block’s payment platform. The company also offers various banking and loan-related services.

Cash App revenue comes primarily from fees charged to users when they use Cash App card or when buying Bitcoin. Block also monetizes the Buy Now Pay Later program.

Despite strong revenue growth, the company has not been able to increase adjusted EBITDA noticeably. This can be attributed in part to impairment losses on Bitcoin inventory and increased marketing costs associated with the BNPL product.

Nevertheless, I believe that SQ is going to benefit greatly from the upcoming crypto bull market, and has a lot 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 very 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 strong believer in cryptocurrencies.

Block has a lot more exposure to crypto and Bitcoin than people think. In addition to being one of the main platforms for buying/selling Bitcoin, SQ has a Bitcoin hardware wallet in the works. The company aims to make self-storage more accessible to everyone, a noble and hopefully lucrative endeavor.

Block also recently talked about a personal BTC mining kit.

Block, Inc. believes so and developers can build better Bitcoin mining rigs. That is why it is considering building a “Mining Development Kit”, or MDK, it said on Tuesday.

Source: Decrypt

Although Block also manufactures ASIC graphics cards, it is important to note that this initiative is mainly about creating a decentralized mining system by empowering the people rather than making money.

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

What can we expect going forward?

With the current economic turmoil going on, a company like SQ that is willing to integrate Bitcoin into its business has more potential than ever.

The current issues created by higher bond yields are not limited to Silicon Valley Bank (OTC:SIVBQ). Most of the US financial system is in a similar situation. In fact, Moody’s has already cut its rating on the US banking system. Ultimately, the only way out of this situation will be to monetize the financial system’s losses, 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 into Bitcoin already underway. Most US ramps to crypto have closed, such as Silvergate (SI), Signature (OTC:SBNY), and SVB, and others are under attack, with Coinbase (COIN) facing SEC fines last week.

SQ is not only one of the latest ways to get money into Bitcoin, but could also become a significant player in enabling Bitcoin use in actual day-to-day financial transactions.

SQ is already a well-established supplier of hardware and software for business sales systems. On the other hand, it has a strong presence with consumers throughout 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 enable completely secure storage of Bitcoin, and you have all the right ingredients for massive Bitcoin adoption.

From a single location, users will be able to acquire Bitcoin, trade it 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 that are subject to bank runs and denominated in an infinite supply currency.

Technical analysis

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

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

Once this B wave is complete, a final sell in the 61.8% retracement at $32 should follow.

Remove

In conclusion, I am encouraged by Block and Jack Dorsey’s commitment to strengthening crypto payments. Furthermore, the company has a solid business model with plenty of room to grow, and I am adding this to the LT crypto share portfolio.