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Cash app users traded Bitcoin aggressively in the second quarter, and all that volume benefited the payments company.
Shares of Square (ticker; SQ) closed up 7.1% on Wednesday for all sorts of reasons, but the digital currency appeared to be one of them. The news is good for Square, and arguably even better for Bitcoin.
When Bitcoin crashed in 2018, many young users lost interest, but clearly some are flocking back. It helps that Bitcoin is on the rise, up 62% this year to $11,700.
Square, whose core business is helping merchants accept credit cards, made almost half its gross profit in the quarter from services on its Cash app, which lets people send money to each other and to invest in stocks and Bitcoin. It appears to have benefited from a trend that has also helped brokers during the pandemic—a rise in day trading.
Square’s revenue from Bitcoin was $875 million, up 600% year over year. It accounted for an enormous portion of the company’s $1.92 billion in revenue.
But that revenue is somewhat deceiving — the company counts the total amount of Bitcoin that it sells to customers as revenue. So if people buy $100 of Bitcoin for their accounts, that $100 plus a small cut to Square goes into Square’s revenue line goes into Square’s revenue line. Square buys Bitcoin and takes a “small margin” on each sale to customers, which it records as gross profit. The company recorded $17 million gross profit from Bitcoin trading in the quarter, less than 3% of its total gross profit (but up 717% year over year).
Square benefited from people depositing their stimulus checks into their Cash app accounts. And many of those people with the Cash app also appear to have traded stocks, along with Bitcoin. Square started allowing equity investments through its Cash App Investing subsidiary last October.
The timing was fortuitous. The Covid-19 lockdowns have inspired a surge in retail trading, with privately held Robinhood Markets announcing in May that it had added 3 million customers this year. Square said in the fourth quarter that its equity investing product had the fastest growth of any Cash app product launch, though the company wouldn’t release figures on the number of customers using it.
A company spokesperson said that Bitcoin and equity volume was up but released few other details: “In the second quarter, we saw year-over-year and quarter-over-quarter increases in volume per active customer across our Cash App ecosystem, including Bitcoin investing and stock brokerage,” she wrote.
Interestingly, Square still doesn’t allow people to buy and sell items using Bitcoin. The company did try that for a while a few years back, but didn’t see much volume.
And Bitcoin, a technology that was designed to make payments seamless, is now used more as an investment like gold than as a payment mechanism. If Square ever did allow Bitcoin to be used for payments and businesses started accepting it en masse, that would be a much bigger deal than the company’s trading revenue.
Write to Avi Salzman at avi.salzman@barrons.com
