Cryptocurrency is quickly becoming an accepted investment asset class among retail investors and institutions alike, but it's a daunting industry at the intersection of finance and technology. Besides figuring out how cryptos actually work, there are thousands of digital coins and tokens available for trade and growth.
If you're new to the crypto game, though, there's one quick and easy way to get started investing that simultaneously allows you to learn about how cryptocurrencies work: Square (SQ -2.19%). Here's why the stock is a great long-term buy on the durable potential for cryptocurrencies right now.
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A big balance of bitcoin
Square is, of course, a digital payments and financial technology platform. It operates in two general categories: Seller Ecosystem (Square's point-of-sale and software services for merchants) and Cash App (the mobile payments and money movement platform geared toward consumers). Square is a top-notch investment in the world of fintech. Seller ecosystem revenue grew 44% in the third quarter of 2021 to $1.39 billion, and Cash App revenue grew 33% to $578 million.
Specifically on the Cash App segment, that Q3 2021 sales figure excludes the finance app's haul from users trading Bitcoin (BTC -0.49%). And that's why Square is more than just an ancillary bet on the crypto universe. Bitcoin-based revenue for Cash App in Q3 (primarily from facilitating customer trading via the app) was up 11% year-over-year to $1.82 billion, generating a gross profit of $42 million (a 29% increase).
That's a meager profit margin for such a big revenue stream. However, to power its Cash App Bitcoin trading capability, Square said it owned $352 million worth of bitcoin at the end of September 2021 (roughly just over 8,000 coins at the U.S. dollar-based value of bitcoin as of September 30).
Thus, with a sizable portion of its balance sheet invested directly in bitcoin tokens, owning Square stock also yields an investor exposure to the original cryptocurrency. If you believe Bitcoin will rise in value over time, Square will be a big beneficiary. CEO Jack Dorsey, an outspoken proponent of Bitcoin, also recently said Square is considering getting into Bitcoin mining, which would put the fintech firm in the company of other mining companies like MicroStrategy (MSTR -0.99%) and Riot Blockchain (RIOT 1.17%).
Using crypto to get stuff done
Besides getting some exposure to Bitcoin, Square has done some other interesting things to promote its business with the crypto movement. Though Bitcoin trading itself generates little in the way of profitability for the company, it has used the crypto to attract millions of Cash App users promoting its trading feature. From there, Cash App can then promote other higher-earning parts of the mobile service -- like payments using a linked credit card, the Cash App debit card, stock trading, and microloans (like via the pending acquisition of Afterpay (AFTP.Y).
The company also allows for bitcoin payments, both within Cash App for consumers and in its Seller Ecosystem for merchants that want to accept bitcoin from customers. Additionally, Square launched a new business segment called Square TBD this past summer. TBD is focused on supporting developers that are working on new products and other fintech use cases for Bitcoin and promoting the crypto for everyday use among consumers and businesses.
Put simply, you can purchase the original bitcoin cryptocurrency as a passive asset, or you can buy Square -- a company that is actively using Bitcoin as a tool to grow its business and with big aspirations for its future. If you're new to investing in the wild world of cryptocurrency, Square stock is a great place to get started.
