Square‘s cryptocurrency drive creates a fresh opportunity for ASX investors

The exchange has a history of rejecting crypto firms, but Square's local listing following its acquisition of Afterpay will give it a greater market cap than CBA.

Along with generating a thousand headlines, the union of Square and Afterpay merged two distinct defining principles of the modern fintech era: buy now, pay later and cryptocurrency.

Square will now dual-list on the ASX with a market capitalisation of more than $US150 billion; a fintech with a greater market capitalisation than Australia's largest established bank, Commonwealth Bank of Australia.

Without a question, this will be a cultural shock for Australia's establishment. The ASX has a history of rejecting crypto-related enterprises, most recently delisting the NFT platform Animoca Brands, which received money two months ago at a $US1 billion value.

While Australia's professional elite investors have avoided Afterpay, they will now have to contend with Square, which is on track to overtake BHP as the ASX's second largest firm.

What the Australian professional investing community is probably unaware of is that Square is strongly anchored in bitcoin and cryptocurrencies.

Square announced its quarterly results concurrently with the announcement of the Afterpay purchase. The company recorded a 200 percent year-over-year gain in bitcoin revenue to $US2.7 billion for the quarter.

Additionally, Square has a treasury policy that requires it to have bitcoin reserves, 8027 of them in fact. Square has informed the market that it intends to grow its bitcoin holdings.

Jack Dorsey, CEO of Square, stated, "The internet craves a local money, and I believe bitcoin is the best representation thus far."

“Everyone should be allowed to participate in cryptocurrencies and enjoy the innovation that underpins them,” he continued. Can you picture a bank CEO in Australia expressing these words?

What makes sense is that Afterpay, which revolutionised consumer finance by pioneering an easy-to-use BNPL, is especially popular with younger Millennials and Gen Z clients.

These are the same clients who have flocked to other emerging technologies like bitcoin and cryptocurrencies.

Afterpay's 15 million US customers will be combined with the millions of retailers who utilise Square's payment solutions through the partnership with Square.

The Afterpay customer base's network effect on Square retailers is critical to this merger, as Square merchants currently have negligible network effects. This cannot be emphasised enough.

A bitcoin-centric application

Increased customer utilisation results in increased revenue for Square retailers. The more businesses who provide BNPL, the more interested these Afterpay Square customers become in the product. All of this is accomplished in a fluid and instantaneous manner using nothing more than a smartphone.

Square included mock-ups of the Afterpay integration into their bitcoin-focused application Cash App in their investor presentation last week to explain the merger.

Cash App is an incredibly simple-to-use payment app that is pre-configured to purchase, hold, and trade bitcoin, as well as to earn rewards in the form of bitcoin. A popular feature of the Cash App is the ability to send money or bitcoin to pals in real time and without incurring exorbitant bank fees.

All of this will be integrated into the Afterpay user base in the coming months.

Square has a consumer business and a sizeable merchant business, which it acquired through the acquisition of Afterpay.

Square's goal is built in part on new technology such as bitcoin and cryptocurrencies, as well as on eroding the traditional credit card industry in favour of its own ecosystem.

To this end, Square stated last month that it would expand Cash App's business into decentralised finance (DeFi), with the goal of recreating traditional financial systems such as banks.

Meanwhile, during last week's Australian Senate Select Committee hearing on Australia as a Technology and Financial Centre, which was chaired by Senator Andrew Bragg, we heard repeated and persistent examples of established banks, such as the CBA, de-banking Fintech businesses in bitcoin and cryptocurrency.

Square's disruption is poised to continue as Australia's second largest publicly traded firm. The technology enables us to reinvent our financial system in a way that it can and should function in the hyperconnected smartphone era.

It has the potential to act as a catalyst for reshaping the financial system in a way that is more beneficial to individuals.

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