Square is taking on the big cryptocurrency exchanges - and it represents a $30 million opportunity

Frank Chaparro

Nov 21, 2017, 05:16 IST

Square is taking on the big cryptocurrency exchanges - and it represents a $30 million opportunity

Richard Drew/AP

In this Thursday, Nov. 19, 2015, file photo, Twitter CEO Jack Dorsey is interviewed on the floor of the New York Stock Exchange.

Square is running a trial that allows some users of its CashApp to buy and sell bitcoin.
That could translate into $30 million in revenues for the company, according to Credit Suisse.
It could also cut into the market share of existing cryptocurrency exchanges such as Coinbase.

Square, the online payments company founded by Twitter's Jack Dorsey, has been running a trial that allows users of its CashApp to buy and sell bitcoin.

And both Wall Street and the crypto world thinks the company stands a good chance at breaking into the nascent digital coin market.

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Square added the feature to Cash, a rival to Venmo, because users asked for it, the company said in a statement. It said it is still trying to figure out how to make it "faster and easier" and is only offering it to a "small number" of Cash users. A full roll-out of the feature would put Square up against cryptocurrency exchanges such as Coinbase and Gemini.

Crypto-fanatics took to Twitter over the weekend to praise the new product, adding that it poses a big threat to existing bitcoin trading platforms.

Jack Mallers, one user of the app, said on Twitter he deposited $20 from his debit card into his CashApp and was able to buy bitcoin in 30 seconds. Josh Olszewicz, a bitcoin trader, told Business Insider Square stands to "eat Coinbase's lunch."

"The big theme is being frictionless as much as possible," he said. "With Square on-boarding [takes] seconds."

Coinbase has allowed users to buy bitcoin instantly with their debits since August 2016, but they charge 3.99% for the service. Square, on the other hand, hasn't been charging users in the trial. Of course, it is still early days, with at least one Wall Street forecasting fees of 1.5% in the future.

Square's brand name could also give it a leg up over existing cryptocurrency exchanges, according to Kirsten Morin, senior investment manager of global venture capital at Aberdeen Standard Investments.

"The industry needs a more visible way to trade," she said. "Square has a brand name that people can trust."

Coinbase has been working hard to get folks to trust its brand. In addition to already storing $9 billion worth of digital assets, the company announced Thursday a new security platform to woo big hedge fund money into crypto.

Still, many crypto-fanatics, including one who goes by the name of "I am Nomad" on Twitter, are more bullish on Square's future in bitcoin.

"Crystal ball prediction - @Square steals 40% of Coinbase's bitcoin business [before end of] second quarter 2018," he said on Twitter.

Wall Street analysts are bullish as well. In a note out Monday, clients of Credit Suisse said Square's venture in crypto could be a tailwind translating into $30 million in revenues. Here's the bank (emphasis ours):

"See ~$30m revenue opportunity in two years: We estimate that if SQ can accumulate 10m bitcoin buyers over two years (tracking Coinbase's growth), this could drive an incremental $30m in revenue (~2% additional growth to our current forecast). This assumes average bitcoin purchases of $200/yr and fees of 1.5%."

As such, the bank has raised its price target for Square by more than 19% from $31 to $37. That's still below its current market price of $45 per share.

Coinbase and Square did not return request for comment by the time of publication.