Square's recently announced $50 million investment in bitcoin (BTC) is a "strong vote of confidence for the future of bitcoin" and a signal the payments company sees "a lot of potential" for the cryptocurrency as an asset, JPMorgan analysts said in a report dated Tuesday.
- While Square's $50 million investment pales next to MicroStrategy's recent $425 million loading up of the cryptocurrency, JPMorgan's global market strategists wrote that Square is likely to make more purchases.
- Other payment companies will also likely follow in Square's footsteps or risk getting shut out of a growing segment, the JPMorgan analysts wrote.
- Millennials have been using Square's Cash App to buy BTC, the researchers noted, and that demand, along with MicroStrategy's purchases, indicate Q3's bitcoin demand exceeded supply at a greater level than Q2's.
- While noting that options contracts to BTC have risen due to how institutional clients prefer to deal with established exchanges like the CME, the JPMorgan strategists said it's likely retail traffic is driving the surge in options.
- Square's investment is a strong vote of confidence for the long term because the September sell-off in BTC only partly alleviated what the JPMorgan team described as overbought conditions created during late July/early August. However, an overhang of net long positions could create a headwind for the price of BTC in the near term, the analysts said.