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Square Goes Down the DeFi Rabbit Hole; What Does It All Mean?

The falling bitcoin price and its inability to build up enough momentum to pull upwards again might indicate a prolonged crypto bear market is in the cards.

However, those versed in the wild price fluctuations of bitcoin and its fellow cryptocurrencies know this is all par for the course, and the latest market downturn is unlikely to deter adherents from building new infrastructure to support crypto’s ongoing march toward mainstream adoption.

Which is big bitcoin proponent and Square (SQ) and Twitter CEO Jack Dorsey’s intention.

Square was one of the first mainstream FinTech players to allow for the buying and selling of bitcoin and only the second public company to add bitcoin to its balance sheet. And now it is going one step further into the cryptosphere.

Last week, Dorsey tweeted Square will develop a new business unit intent on creating decentralized finance (DeFi) applications using bitcoin.

There wasn’t much detailed info behind the tweet, nor has any official announcement been made yet, but BTIG’s Mark Palmer believes the announcement represents an “interesting new source of optionality for SQ,” one which “offers the promise of bringing new crypto products to SQ’s platform that could boost its user base and increase engagement.” This particularly applies to the many mainstream consumers attracted to Square’s Seller and Cash App ecosystems, including the “unbanked consumers” utilizing the latter as a bank-account substitute.

Square stock’s performance is already viewed as highly correlated to bitcoin, and the latest venture will only make the shares “even more of a play on the widespread adoption of bitcoin than they already are.”

Whether this is a good or bad thing remains to be seen. Although the company recently indicated it has no intention right now of adding to the $220 million of BTC it currently holds, CFO Amrita Ahuja said during the 1Q21 conference call in May that there would be “lots of other opportunities for [the company] to learn with bitcoin.”

What we can learn from Palmer’s latest assessment is that his Buy rating for SQ stock remains and so does the $295 price target. Investors are looking at upside of 15% from current levels. (To watch Palmer’s track record, click here)

Most of Palmer’s colleagues are on the same page; based on 16 Buys, 4 Holds and 1 Sell, the analyst consensus rates SQ a Moderate Buy. The forecast is for 12-months gains of 11%, given the average price target comes in at $285.42. (See SQ stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.