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Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Photo: Joe Raedle/Getty Images

Jack Dorsey triples down on Bitcoin

Square CEO Jack Dorsey speaks at a bitcoin conference

Hello and welcome to Protocol | Fintech! This Tuesday: Jack Dorsey loves Bitcoin while Trump hates it, and Wealthfront? Well, they'll manage.

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The Big Story

Jack Dorsey triples down on Bitcoin

Bitcoin has been good for Square. The company is worth nearly six times what it was in late 2017, when the company announced it would let Cash App users buy and send the cryptocurrency, triggering a run-up in the company's shares.

With the crypto craze going mainstream and Cash App positioned as one of the easiest ways in, Square is cashing in. Bitcoin-related revenue jumped more than tenfold in the first quarter of this year, and now accounts for almost 70% of all of Square's revenue.

No wonder Jack Dorsey feels emboldened to widen the company's bets on crypto. At the Bitcoin Conference in Miami on Friday, Dorsey spoke at length about the company's plans and his personal passion for Bitcoin.

  • Square, which has considerable expertise in hardware from developing credit-card readers and point-of-sale devices, is exploring building a hardware wallet, Dorsey said. Such devices securely store the private cryptologic keys used to swap bitcoin.
  • Blockstream, a bitcoin mining company, announced Square would invest $5 million in a solar-powered mining operation.
  • Square has also started an industry group to defend crypto patents against trolls.

Does Square need to do this? There's an argument that bitcoin is a distraction from the company's core payments business.

  • The corporate line here is that bitcoin fits into Square's mission of "economic empowerment."
  • The Motley Fool's Daniel Sparks pointed out that if you take out bitcoin, Square's core business is supercharged. The retail business is recovering from the pandemic, Cash App's non-bitcoin transaction volumes are leaping and overall non-bitcoin revenue rose 44%.
  • There are also accounting questions around Square's bitcoin revenue. When you buy or sell bitcoin on Cash App, Square isn't finding a transaction partner for you like a broker would; instead, it's acting like a market maker. That means it's recording the full value of the bitcoin transaction on its books, rather than its relatively small 2% take. Take the eye-popping bitcoin revenue numbers with a grain of salt, in other words.
  • Finally: a hardware wallet? While arguably more secure than online wallets, there are many offerings already on the market, and they mostly appeal to hardcore crypto enthusiasts, not the new users Cash App has been so effective in bringing into the Bitcoin world.

There's a simple explanation for this, and like many things in Silicon Valley, it comes down to recruitment. To win over the best and brightest, you have to be the coolest. And in the payments world, right now, that means being a player in cryptocurrency. (See also: Facebook's Diem.)

  • That may start with keeping the services of Square's part-time CEO. "If I were not at Square or Twitter I'd be working on Bitcoin," Dorsey said at the Miami conference. "If it needed more help than Square and Twitter, I would leave them for Bitcoin. But I think both companies have a role to play."
  • Of note: Cash App is hiring engineers to build "powerful new product experiences for person to person payments." The job description doesn't say "Bitcoin," but…

The only thing you shouldn't expect to change, at least in the short term: Square's corporate bitcoin balance, which at one point had grown to $220 million, or 5% of its cash and cash equivalents. CFO Amrita Ahuja recently said the company didn't plan to add to its holdings.

— Tomio Geron

A MESSAGE FROM MICRON

Recently, Micron announced new memory and storage innovations across its portfolio based on its industry-leading 176-layer NAND and 1α (1-alpha) DRAM technology. But what does "1α" mean, and just how amazing is it?

Learn more

From Protocol | Fintech

The DOJ hit back at DarkSide. The Justice Department said it recovered $2.3 million in bitcoin ransom paid to the Colonial Pipeline hackers.

Wealthfront embraces crypto. Co-founder Dan Carroll said the robo-advisor is considering offering Bitcoin and other cryptocurrencies, but will continue to stress carefully considered investing goals "as opposed to gambling."

Dave is going public. The banking app backed by Mark Cuban said it will become a publicly-traded company through a SPAC merger with Venture Park Capital.

Overheard

  • "It just seems like a scam. I don't like it. I want the dollar to be the currency of the world." —Former President Donald Trump on Bitcoin.
  • "Our spending a year has gone from maybe four or five hundred million dollars a year when I first became CEO a little over a decade ago to a billion dollars a year, and 2,000 plus people work on it. But there's more that can be done."Bank of America CEO Brian Moynihan on the bank's efforts to battle the growing problem of cyberattacks and ransomware.
  • "The majority of my investors would say that's where you usually list. But are we going to consider London? And are there elements of how you guys are thinking about changing the rules that could make it more attractive? Absolutely." —Klarna CEO Sebastian Siemiatkowski on why the "buy now, pay later" startup could list in the U.S. instead of the U.K., where there is a growing push to regulate the ecommerce payment plans.
  • "COVID has helped us because previously an investors' due diligence process would usually involve them coming to the country. It was not that easy for them to visit Pakistan. … [But] they became open to speaking with founders over Zoom and other digital means."Ali Farid Khwaja, chairman of Karachi-based KASB Securities, on the spike in capital from overseas investors in Pakistani fintech companies.

Need to Know

  • Ripple filed a motion in its dispute with the SEC. The cryptocurrency network wants the Securities and Exchange Commission to disclose how it reached the conclusion that its XRP cryptocurrency should be considered a security.
  • Visa struck a partnership with Goldman. The payments company is working with the Wall Street giant's transaction banking unit to make it easier for businesses to make corporate payments globally.
  • Coupa launched a $50 million venture fund. Coupa Ventures will invest in early- and growth-stage companies focused on building tools to help businesses improve their spending and supply chain.

Deal Flow

  • Capchase raised $125 million. The New York-based investment funding technology company's series A round was led by QED investors.
  • Nium will buy Ixaris. The Singapore-based B2B payments platform has agreed to acquire the London-based travel payments software company.
  • Trulioo raised $394 million. The Canada-based identity verification technology company's series D round was led by venture capital firm TCV and boosts its valuation to $1.75 billion.

3 Questions With...

Arseny Kostenko, SVP of small business initiatives, Fispan

What fintech trend is most troubling for you?

In the modern world, payments are merely electronic notifications propagating an account's balance change in a distributed network of ledgers. It bothers me that it's highly desirable to clip the ticket and charge payees or payers a percentage of a transaction amount. It's the same field in a file — whether its value is in the hundreds of dollars or millions.

What fintech company have you been most impressed with this past year?

I'm really fascinated by Veem — the way they use blockchain to cut the cost of sending payments and consequently make electronic payments more accessible to their customers is truly awesome. Another company I find impressive is Mantl, which in some ways is similar to Fispan, but focused on opening bank accounts instead of payments.

What problem would you like to see a fintech company solve?

I would like to see a personal finance app that can review each line item as opposed to simply categorizing vendors. For example, when I visit a major retailer like Costco, existing apps would categorize it as "shopping" or "grocery" which doesn't help me understand if I spend too much on certain products.

A MESSAGE FROM MICRON

Recently, Micron announced new memory and storage innovations across its portfolio based on its industry-leading 176-layer NAND and 1α (1-alpha) DRAM technology. But what does "1α" mean, and just how amazing is it?

Learn more

Data Point

3.2 million

That's the number of individual investors who own AMC stock as of March, accounting for 80% of the company's ownership.

Thanks for reading — see you Friday!

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