Square spends $50 million to buy Bitcoin, triggering a surge

Square Inc. has announced a $50 million investment in Bitcoin. The company purchased approximately 4,709 BTC through the cashless platform that powers the company’s Cash App.

What’s more important than Square investing $50 million in Bitcoin is sharing our way of doing things

-Jack Dorsey, Square CEO

Bitcoin becomes a strategic need for institutions

Square’s 1% Bitcoin investment on its balance sheet represents a growing trend of institutional investors investing their reserves in Bitcoin. The payment company noted in its investment white paper:

“We believe now is the time to expand our primarily U.S. dollar-denominated balance sheet and make a meaningful investment in Bitcoin.”

Paul Tudor Jones, a veteran hedge fund manager with $22 billion in assets under management, first adopted a Bitcoin hedging strategy earlier this year. Jones believes that from the unprecedented economic conditions in the 1970s to the current global crisis, Bitcoin can be said to be a suitable safe-haven tool like gold.

Similarly, MicroStrategy, a Nasdaq-listed business analytics company, also converted $425 million of its assets into Bitcoin.

Furthermore, Square, Tudor, and Microstrategy are not the only businesses with Bitcoin on their balance sheets. Crypto-centric data analytics firm Nansen has reportedly allocated 5% of its assets to Bitcoin. Alex Svanevik, co-founder of Nansen, told Crypto Briefing:

“Generally speaking, since we’re already in the crypto space, we try to limit our exposure to crypto in terms of funds. But it’s natural for us to have some exposure to Bitcoin and other digital currencies.”

Square is already in a similar position as it has “invested in Bitcoin from a product, leadership, and legal innovation perspective.”

Until now, U.S. companies have relied on the dollar as their preferred investment alternative to Treasury bonds. However, an unprecedented increase in cash supply by the U.S. government and its central bank this year has raised concerns about currency valuations.

Svanevik added:

“As an international company, USD is the main liquid asset on [Nansen’s] balance sheet, but unbridled money printing means that having a 100% USD portfolio is simply too risky for most companies. A 1% exposure to Bitcoin or other digital currencies represents insurance against political risk and M2 inflation.”

Historically, investing 1-5% in cryptocurrencies has also yielded strong long-term returns. This was confirmed by VanEck in its August 2020 report titled “The Investment Case for Bitcoin.”

In the study, the firm calculated the cumulative returns generated by holding 0.5-3% of assets in Bitcoin. They found that a generous 3% allocation to Bitcoin resulted in an annualized return that was 5% higher than the return of a portfolio that was not allocated to Bitcoin.