Bitcoin (CRYPTO:BTC), the first cryptocurrency, has gotten a lot of attention lately since it offers large returns to long-term investors. Several have predicted that it will eventually replace or at least compete with the US dollar, and this has proven to be accurate in some ways. Many people in economically insecure countries use Bitcoin instead of the US dollar to store value, make purchases, and keep track of their expenditures.
Although the Treasury Department has expressed no interest in replacing the dollar with Bitcoin, Coinbase (NASDAQ:COIN) and Square (NYSE:SQ) would almost likely benefit from such a move.
The first is Coinbase.
“The cryptoeconomy is powered by Coinbase.” Since its inception in 2012, it has operated a cryptocurrency exchange. Coinbase isn’t the only cryptocurrency exchange out there. However, it was the first to market in the industry. This provided it an advantage and brand recognition that most of its competitors lacked.
Coinbase is also the first pure-play cryptocurrency exchange currently trading on the stock market. This means that the company competes with only a few others for stock investors’ attention.
Furthermore, Coinbase provides an easy-to-use platform, reducing the probability that users will seek out competitors.
On Coinbase’s site, around 56 million verified users from over 100 countries exchange cryptocurrency.
Coinbase’s top and bottom lines have benefited from the significant growth in crypto interest over the last year. It announced total sales of $1.8 billion in the first quarter of 2021 in its inaugural earnings announcement, a nine-fold increase over the same period last year.
In addition, net income was $771 million, which was 24 times larger than the $32 million profit in Q1 2020. Despite a 75-fold increase in income tax expenses, net income outperformed revenue growth because operating expenses increased by just over fivefold.
Coinbase’s stock appears to be costly, as it trades at 22 times its book value. This could explain why Coinbase’s price has been continuously declining since its April IPO. During that period, crypto values have also fallen from their highs, adding to the sock’s strain.
Conditions would very probably turn in Coinbase’s advantage if Bitcoin became the official currency. With Bitcoin becoming indispensable to the broader public rather than just crypto investors, its economic relevance would almost certainly be enough to create a bull argument for Coinbase.
Square’s Bitcoin exchange has also become a substantial source of revenue. As the epidemic prompted more customers to explore fintech solutions, Square’s shares soared to new highs in 2020. Nonetheless, Bitcoin became one of Square’s Cash App’s most popular revenue sources in 2020, with over 3 million users trading on the site.
Because Square created Cash App to disburse and receive payments, it’s a natural fit for a Bitcoin-based economy. Furthermore, it has established a significant lead over PayPal’s Venmo, a competing virtual cash network that did not support crypto transactions until recently.
Square also connects Cash App to a broader financial ecosystem. Square’s Cash App and its flagship card readers handle personal transactions. In addition, the corporation may manage a variety of financial operations with Square Register and Square Payroll.
With the debut of Square Bank, that capability has grown even further. Square is able to borrow money from the bank without the intervention of a third party. Additionally, according to Bloomberg, this bank will soon provide business checking and savings accounts. For business finance, this brings together traditional banking with technology.
Square is required by accounting rules to log the value of Bitcoin transacted, which skews the data. Despite this, Bitcoin revenue in 2020 was $4.6 billion, about nine times higher than the $516 million reported in 2019. Furthermore, Bitcoin revenue increased to $3.5 billion in the first quarter of 2021, up from $308 million in the previous quarter.
Finally, the fact that Q1 2021 revenue was 76% of full-year 2020 revenue demonstrates Bitcoin’s tremendous development despite its lack of formal recognition. Square’s financial ecosystem, along with Bitcoin trading capabilities, would arguably make it the most important fintech stock if Bitcoin became the national currency.