Whether you believe cryptocurrencies are a smart investment or not, they have undeniably captured the attention of consumers and financial institutions. In the last year alone, Bitcoin (BTC 0.85%) and Ethereum (ETH 4.29%) -- the two largest cryptocurrencies -- have surged in price by over 1,000% and 1,400%, respectively.
However, these assets are also incredibly volatile. After the last crypto bubble burst in December 2017, both cryptocurrencies lost over 80% of their value. For investors who prefer to avoid buying such a risky asset but are still interested in digital currency's potential, stocks like Mastercard (MA 0.68%), PayPal Holdings (PYPL -1.76%), and Square (SQ 0.69%) look like compelling alternatives.
Here's why these three companies with cryptocurrency connections are worth a deeper dive.
Mastercard operates one of the largest payments networks in the world, connecting consumers, merchants, and financial institutions in over 210 countries and territories. That's why the company's support of cryptocurrencies is such a big deal.
Mastercard's philosophy is simple: Consumers should be able to spend their money in whatever form they choose. That's why the company partnered with London-based fintech Wirex and U.S.-based payment processor BitPay to launch crypto payment cards last year. In both cases, these cards allow consumers to fund purchases with digital currencies like Bitcoin and Ethereum, whether the transaction takes place in-store or online.
Mastercard has also partnered with Uphold to launch the world's first multi-asset debit card. Through Uphold's platform, U.S. consumers can purchase assets like cryptocurrencies and precious metals, then use those assets to fund purchases anywhere Mastercard is accepted. In other words, if you want to buy a pizza with gold, now you can.
The takeaway here is this: Mastercard is making it easier for consumers to spend Bitcoin and other digital currencies in the real world. That should boost payment volume for the company, driving top-line growth as cryptocurrencies become more popular.
In October 2020, PayPal announced the launch of cryptocurrency trading on its platform. The feature has already been added to PayPal accounts in the U.S., and the company plans to bring the same functionality to Venmo in the coming months. PayPal also plans to launch crypto trading in international markets this year.
During the most recent earnings call, CEO Dan Schulman said the response to the company's crypto launch "greatly exceeded" its expectations. Schulman also noted that this was just the first step in PayPal's "extensive roadmap around crypto, blockchain, and digital currencies."
For instance, the company will allow users to transact in cryptocurrency. In other words, consumers will be able to make purchases at any of PayPal's 29 million merchants using Bitcoin, Ethereum, or various other digital currencies. That feature should launch later this quarter, and it could be a game-changer.
Finally, PayPal recently announced its acquisition of Curv. This Israel-based start-up provides a security platform that helps exchanges, asset managers, banks, and fintechs safely store digital assets like cryptocurrency. The Curv team will join PayPal's newly formed business unit focused on blockchain and digital currencies, bolstering its growing pool of resources.
So what's the bottom line? PayPal is clearly on board with cryptocurrencies, and its support is a big win for the crypto community. The company's plan to allow crypto-funded transactions should help make currencies like Bitcoin more mainstream. Moreover, this move should help PayPal add new accounts and grow its payments business as the crypto craze continues to gain steam.
Square beat both of these companies to the punch. Back in 2018, it started allowing Cash App users to buy, sell, and hold Bitcoin.
Since that time, the company has invested aggressively in the service. Most recently, Square spent $50 million on Bitcoin in October 2020, buying roughly 4,709 tokens at the time. And shortly after, Square purchased another 3,318 tokens for an additional $170 million. Now, Bitcoin represents roughly 5% of Square's cash, cash equivalents, and marketable securities.
While the cryptocurrency doesn't generate much profit directly -- gross margins are roughly 2% on Bitcoin -- it has helped increase Cash App user engagement. In fact, in the company's most recent shareholder letter, Square indicated that more than 3 million Cash App consumers traded Bitcoin in 2020, and more than 1 million bought Bitcoin for the first time in January 2021.
That rising level of engagement has translated into higher gross profit per user because consumers who trade Bitcoin through the Cash App also use other products (like the Square Cash Card) more frequently.
Finally, Square added Bitcoin to its Boost rewards program in December 2020, allowing consumers to earn Bitcoin when they make purchases with their Square Cash Card. Again, this is enhancing user engagement. In fact, according to Square, Boost rewards members spend about twice as much as other Cash Card consumers, driving gross profit up in the process.
Going forward, Square's strategy around Bitcoin should continue to pull new users onto the platform and deepen Cash App user engagement. That in turn should power increasing profitability for this fintech company.