How Square and Bitcoin Will Change the World

Origins

In December 2007 the subprime mortgage crises ignited the “Great recession” beginning in United States and soon spreading across the globe. This period culminated on September 29th, 2008 with the crash of the United States stock market. One month later on “Halloween” October 31st, 2008 the person or group pseudonymously identified as Satoshi Nakamoto published the Bitcoin white paper.

These events are not independent, they are in fact uniquely related. It is widely believed that the events which culminated in the financial crises was what subsequently inspired the advent of Bitcoin with one in particular — the mistrust of banks. The events which played out during the crises led banks to lose money on mortgage defaults, interbank lending to freeze, and credit to consumers and businesses to dry up. This in conjuncture with other complex and interconnected events led to a total collapse of the world economy which was felt on Main st. all the way up to Wall st. and everywhere in between.

Around the same time in 2009 Jack Dorsey founded Square which produced a small, convenient card reader coupled with intuitive software that made it easy for anybody with a smart phone to collect and process payments.

A lot has changed between then and now.

We recovered from the financial crises in spades due to massive bailouts for banks and auto-manufacturers that kicked off a ten year bull-market and an unfathomable run of growth and prosperity catalyzed by massive technical innovation particularly in cloud computing and mobile.

We have ridden this wave up to 2020 where a new and unfamiliar crises has taken hold of the world. Despite this the S&P 500 has broken all time highs despite millions unemployed. Are we living in the twilight zone?

During the April — June 2020 quarter, the US Treasury borrowed $2.753 trillion. It ended the quarter with a cash balance of $1.722 trillion.

On Aug 3rd, the Treasury declared an additional borrowing of $2.16 trillion in the second half of 2020, with $1 trillion of that linked to anticipation that Congress will pass more legislation to fight COVID-19. The Treasury will borrow $947 billion in the July–September quarter, and $1.216 trillion in the October–December 2020 quarter.

Therefore, total borrowing from April–December 2020, which excludes the pre-pandemic first quarter, will be a staggering $4.9 trillion.

As the virus continues to rage breaking records in infections per day we will be soon coming to an era of reckoning

Digital Gold

As the entire world is nearing a breaking point the cryptocurrency asset class is approaching all time highs. This new asset which was completely unknown to the majority of the world before its 2017 bull-run which entered it into the main stream conscience has now slowly been validated as a legitimate asset class along with bonds, securities, and gold. This has been helped along by companies like Coinbase, Gemini, and Square’s Cash App (more on them later) which host intuitive exchanges that allow the massive to buy and hold cryptocurrency assets.

Now big momentum building events have started to occur in 2020 where the federal government has made it legal for banks to hold crypto assets and PayPal is empowering its 346 million active accounts to buy Bitcoin. All of this new exposure to Bitcoin is setting the stage for its initial use case — digital gold.

Gold currently has a market capitalization of $9 trillion while Bitcoin sits around 294 billion.

Gold is the traditional hedge against inflation and for the volatility of the securities market. Some well known Bitcoin bulls are predicting the “flippeningwhere Bitcoin surpasses the market cap of gold to occur within the next decade. For those of you keeping score — that would skyrocket the value of Bitcoin over 500k per BTC.

Bitcoin’s first main stream use case is as the alternative to gold.

The currency of the internet

The path to Bitcoin’s place as a speculative asset is paved but for it to really change the world it needs to become a widely used and accepted form of payment that is removed from the effects that stem from reckless government spending and management.

Countries such as Brazil, Venezuela, Argentina and Turkey which are facing levels of inflation surpassing that of the United States have seen the value of BTC relative to their local currencies reach all time highs. The widespread use of Bitcoin as a means of payment will first be seen in these countries before it is felt in the USA.

It is important to understand that despite the media driven perception, the United States is spectacularly stable in comparison to the majority of the world. Bitcoin’s massive value will be seen in these countries first where inflation rates tower over that of the USA. An example of this is in India where inflation is at 8,017.22% from 1958–2020 compared to 801% for the US over the same period of time and where the current rates are double. This devaluing of currency is especially treacherous as many of the citizens of these nations do not have the same access to inflation resistant assets like securities that we take for granted in the United States.

This causes the poor to get much poorer. As wages do not rise to meet the rate of inflation you find yourself with the same amount of money which can buy less. A solution to this can be an inflation resistant currency that is highly accessible to everyone, I.E Bitcoin.

Where Square comes in

For Bitcoin to truly take hold as the currency of the internet and of the future there needs to be a reliable infrastructure in place to send and accept payments in BTC — in comes Square. Led by notable Bitcoin bull Jack Dorsey Square can position itself as the plumbing to the Bitcoin revolution.

First, the 2+ million businesses using Square’s POS systems and other products can easily accept BTC payments. This would lead to every day transactions like buying coffee to be done using BTC. Next, Square could enter more markets freeing them to do the same.

“If we were able to use it a currency today, we could release our apps in every app store around the world instead of the five we are in.” — Jack Dorsey

Then Square’s property “Cash App” could facilitate mobile and online payments in a legitimized fashion. This could kickoff a massive adoption of BTC leading to a much free-er financial world.

Let’s see how it plays out.

See you next week.

Trevor

Want to read some of my other musings?

Keep the Unicorns, Give Me the Camel

What We Can All Learn From Quibi

The Social Dilemma is an Unprecedented Opportunity

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