The stock market has made a lot of progress so far in 2021, but market participants had to deal with a modest setback on Friday. Investors seemed to react negatively to worries about inflation on the one hand, and rising COVID-19 cases in the U.S. on the other. By the end of the day, the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) all saw declines of nearly 1%.

Index

Percentage Change

Point Change

Dow

(0.86%)

(299)

S&P 500

(0.75%)

(33)

Nasdaq Composite

(0.80%)

(116)

Data source: Yahoo! Finance.

Losses in the stock market pale in comparison to the decline that Bitcoin (CRYPTO:BTC) has seen, as it has lost almost half its value in just the past few months. Today, a new announcement from Square (NYSE:SQ) seemed to offer some potential support for cryptocurrency investors. Below, we'll look more closely at what Square said and what it could mean for Bitcoin and the rest of the crypto market.

3-D mosaic of Bitcoin symbol in yellow against a grey background.

Image source: Getty Images.

Squaring off for a long-term win

Shares of Square were up 1% on the day after having risen more sharply earlier Friday. The latest announcement from the company emphasized its long-term commitment to Bitcoin and the crypto market.

Square CEO Jack Dorsey tweeted late Thursday that the company would build a new business that will support decentralized finance using Bitcoin. The project will involve creating an open developer platform that will enable the provision of financial services without having to acquire associated custodial services or obtain permission from centralized authorities to make transactions.

Square has taken an open-source approach to much of its Bitcoin strategy thus far, including its latest hardware wallet to allow investors to hold their cryptocurrency in cold storage. Square also intends to integrate its other services, particularly its popular Cash App, to provide exposure to DeFi.

A crypto tug-of-war

Bitcoin has seen a lot of cross-currents lately. On the one hand, there are increasing signs that the cryptocurrency is gaining mainstream adoption on multiple fronts. The latest positive news came from a report that Bank of America (NYSE:BAC) has approved some of its clients to start trading in Bitcoin futures, a move that would increase market liquidity and potentially reduce future volatility in crypto price movements.

Yet even with the price of Bitcoin having fallen so much since its highs, it's easy to forget that the cryptocurrency is actually still up sharply over slightly longer timeframes. This time last year, for instance, you could've bought Bitcoin for less than $10,000. Prices are still higher than they were at the beginning of 2021 -- even after a stellar 2020 for the leading crypto token.

Making Bitcoin's case

In the long run, for Bitcoin to succeed, it'll need to demonstrate a value proposition that goes beyond mere speculation. If financial innovation finds new ways to put the cryptocurrency to work and demonstrate true benefits over conventional banking services, then Bitcoin could have a bright future and bounce back convincingly. However, it's entirely possible that crypto disruptors will look beyond Bitcoin to other crypto tokens with more attractive attributes. The future is highly uncertain for Bitcoin, but it's anyone's guess whether the bulls or bears will win out in the end.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.