Cryptocurrencies are on fire in 2024. Since the year began, Bitcoin's price has surged from $45,000 to more than $60,000.
If you're a big fan of cryptocurrencies, buying them directly is a reasonable action. But there are ways to diversify your exposure while still betting big on their growth.
Investing in Block (SQ 2.32%) stock, for example, is arguably one of the best ways to profit from the growth of crypto.
Block is betting big on Bitcoin
Block is all in on cryptocurrencies like Bitcoin. The company, formerly known as Square, officially changed its name to Block in 2021 to reflect its commitment to blockchain technologies.
This name change was a long time coming. For years, the company had spent millions building cryptocurrency features into its payment networks. In 2020, the company invested $50 million directly into Bitcoin, roughly 1% of its total assets. "Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company's purpose," the company explained at the time .
Today, buying stock in Block is a strong bet on the rising adoption of cryptocurrencies like Bitcoin. The company's Cash App, for example, currently has more than 40 million users, millions of whom have used the app to buy, sell, and transact in cryptocurrencies as well as conventional currencies .
In the fourth quarter of 2023, Block generated $5.8 billion in revenue, up 24% from the year before. The biggest growth driver was Bitcoin revenue, which totaled $2.5 billion. Without Bitcoin revenue, the company's sales increased by just 15% year over year .
What exactly does Bitcoin revenue include? The term captures the total amount of Bitcoin sold to customers. This is not a very profitable business right now as Block's costs must first cover the initial Bitcoin purchase, but the figures signal the company's future.
Through its Cash App and other properties, Block wants to become a central hub for everything crypto. It not only wants to become a trusted Bitcoin seller, for example, but also a lender and enabler of blockchain technologies in general. That's why Block is funding several initiatives like Spiral, which builds open-source Bitcoin projects, and TBD, an open-developer platform that makes it easier to build with Bitcoin.
Even Block's ownership of Tidal, the music streaming service, is a bet on Bitcoin. The creator economy is now deeply entrenched within the internet economy. And as Block Chief Executive Officer Jack Dorsey once explained, the "internet requires a currency native to itself, and in looking at the entire ecosystem of technologies to fill this role, it's clear that Bitcoin is currently the only candidate."
Now is the time to buy
Block stock should be viewed as a long-term bet on the rise of cryptocurrencies. But there is reason to believe that right now provides an exceptional entry point.
For years, Block was priced as an expensive growth stock. On a price-to-sales basis, shares regularly traded at a multiple between 5 and 15. After a steep decline, however, shares now trade at just 2.2 times sales.
Why did Block's stock price decline so much in 2022?
Although the company continued to post impressive growth numbers, Bitcoin's price fell precipitously, casting doubt on the company's long-term vision. Additionally, the company posted several quarters of huge losses, some totaling more than $200 million.
Last September, founder Jack Dorsey rejoined the company as chief executive officer, promising to trim expenses and return the company to profitable growth. His promises have achieved early success. In 2023, the company posted $10 million in net income. That's not very impressive until you compare it to 2022's net loss of $541 million .
It will take time for Block's ultimate vision to be realized, but it appears to have the technology, vision, and management in place to benefit from the long-term rise of cryptocurrencies. The current depressed valuation may not last for long.
