What happened
The price of bitcoin (BTC 0.88%) surged to all-time highs early Monday morning, causing stocks like fintech company Square (SQ 1.28%) to rise as well. Square stock rose 8% for the session.
So what
The price of bitcoin is influenced by supply and demand. And demand appears to be growing. This morning, Tesla announced that it bought $1.5 billion in bitcoin tokens during January. Companies like MicroStrategy had done this long before Tesla, but Tesla is a large-cap stock and a member of the S&P 500. Now that this high-profile company is converting some of its balance sheet into bitcoin tokens, it could be a sign other companies will soon follow.
Image source: Getty Images.
As companies and institutional investors continue to warm to the idea of cryptocurrencies, demand is growing and the price of bitcoin is rising. The increasing value in turn attracts many regular investors, and that's where a company like Square comes in. Through its Cash App, users can easily buy and sell bitcoin tokens.
If the price of bitcoin keeps rising, then it's logical to assume more users could be attracted to the Cash App. The same could be said for PayPal Holdings, which recently started offering bitcoin trading as well. While it didn't rise as much as Square stock today, PayPal stock was still up 4%.
Now what
Square tries not to make money from processing bitcoin transactions, performing the service as close to cost as possible. Therefore, some might think today's move is overdone. After all, even if Square starts processing more bitcoin transactions, where's the financial benefit?
That's a fair point. However, it's hard to quantify how many people might become Cash App users for bitcoin initially, but will then begin to use Square's services for other things. For that reason, I do believe Square could benefit from a crypto boom and it makes sense that the stock was up today.
