Bitcoin (CRYPTO:BTC) is having a wild year. After about an 800% gain from the start of 2020 to March 2021, the original cryptocurrency has taken a breather with its value nearly cut in half.
The optimism surrounding bitcoin and cryptocurrencies in general is still promising, though, and governments, companies, and consumers alike are increasingly willing to accept and hold onto the digital currency. Three stocks that have bet on bitcoin and are worth buying right now are Square (NYSE:SQ), MercadoLibre (NASDAQ:MELI), and Silvergate Capital (NYSE:SI).
Square: A top fintech building a platform for the future
Bitcoin is exciting, but ultimately, it’s a fixed asset — it doesn’t do anything by itself. It derives its value when someone does something with it, such as trade it, accept it as a form of payment, or use it to build a finance application (since bitcoin, like other cryptos, is really just software). On this front, Square is a leader in promoting bitcoin as a future player in the world of finance.
During its 2021 first-quarter update, Square said it owned just over 8,000 bitcoins, worth some $300 million at current market prices. That’s a big bet, but still a minority share of Square’s more than $5.0 billion in total liquidity.
CEO Jack Dorsey hasn’t been shy about his digital payments company’s bullish viewpoint on the crypto. Square sees bitcoin as the future of finance on the internet and is even considering building hardware-based wallets for consumers and merchants to store their digital assets on (versus at brokers like RobinHood or Coinbase). Dorsey is a controversial figure, but Square and its subsidiary Cash App have a massive following — one that shouldn’t be ignored.
At this point, all this talk of bitcoin as the future of finance is speculative. But for now, Square has used its digital asset position to become a top trading spot for many people via Cash App, and the coins can even be used as a method of payment with participating merchants on the Square platform. And once Cash App acquires a new user, it has a myriad of other services it can promote like stock trading, micro loans, tax prep, and of course basic digital banking.
Square’s total revenue in the first quarter was up 44% year over year to $1.55 billion (or up 266% to $5.06 billion when adding in bitcoin), and the company is in the early stages of turning a profit (trailing 12-month free cash flow was only $16.2 million). This is a fast-growing financial services firm getting a huge lift from the crypto craze. I can’t buy enough right now.
MercadoLibre: Using crypto to beat back inflation
MercadoLibre recently joined Square on the shortlist of companies that own bitcoin. The Latin American e-commerce leader revealed it purchased $7.8 million-worth in the first quarter as part of its “treasury strategy.” It’s unclear what MercadoLibre’s next move will be, but my guess is it will buy more in subsequent quarters.
The reason has a lot to do with inflation. Many South and Central American countries in which MercadoLibre operates have been stuck in a highly inflationary environment for some time with prices of basic goods on the rise. Since bitcoin has a cap on the number of coins that can exist (just over 89% of the 21 million total cap have been mined so far), it serves as a type of “digital gold” that can appreciate in value over time if demand outpaces supply. In fact, many consumers in countries like Argentina have turned to crypto to protect their assets, and it seems MercadoLibre is doing the same.
To illustrate the problem, revenue was up 111% year-over-year in the first quarter to $1.38 billion, but growth jumped to 158% when excluding fluctuating currency conversion rates. As MercadoLibre grows and matures, these inflation effects that reduce its realized revenue and profits could be a real problem, one that could be partially fixed if bitcoin continues…