What happened
Shares of Block (SQ 1.86%) were tumbling today along with the broad market as the fintech stock was hit by a number of different concerns today.
Block was down 10.5% as of 10:38 a.m. ET, while the Nasdaq had fallen 3.8% at the same time.
Growth stocks were falling sharply as the S&P 500 entered a bear market, and investors prepared for faster interest rate hikes and a greater risk of a recession. As a small-business lender and payments processor, Block, which was formerly known as Square, is particularly at risk, as higher interest rates make it harder for businesses to borrow and grow, as does an increased risk of a recession.
Additionally, cryptocurrencies fell sharply over the weekend after crypto lender Celsius Network suspended withdrawals due to "extreme" market conditions. Interpreted another way, the company could be trying to prevent a run on deposits as the lender will fail if too many users try to withdraw their money at the same time. Binance, the world's largest crypto exchange, also temporarily halted Bitcoin withdrawals this morning due to a "stuck transaction causing a backlog."
Block holds a significant amount of Bitcoin on its balance sheet, supports Bitcoin transactions through its Cash App, and CEO Jack Dorsey has been an enthusiastic Bitcoin bull, so it's not surprising that a crash in Bitcoin, which was down 15% over the last 24 hours, would add to Block's woes.
NYSE: SQ
Key Data Points
So what
The cyclical nature of interest rates and recessions seems like less of a risk for Block than the implosion in the crypto market. All fintech stocks, including peers like PayPal Holdings, have pulled back on the broader market sell-off, but Block has attempted to differentiate itself from its peers by moving aggressively into Bitcoin, crypto, and decentralized finance, and Dorsey is a clear believer in the potential of that space.
Coming just weeks after top-10 cryptocurrency Terra collapsed, an implosion in an exchange like Binance could crush the crypto market permanently, ending trust in the institutions that are supposed to safeguard access to the blockchain-based tokens.
Now what
As of its first-quarter earnings report, Block continues to grow and is profitable on an adjusted EBITDA basis, but a recession would weigh on the company's performance, and with consumer confidence falling fast, that seems likely.
Square has diversified beyond its small-business fintech roots to include Cash App; the Tidal music streaming service; the buy now, pay later business Afterpay; and TBD, its decentralized finance arm. That combination makes it difficult to accurately value the company as it has no true peers. Above all, a bet on Block at this point seems to be a bet on Dorsey to navigate the future of payments and finance.
