Another MicroStrategy? Jack Dorsey’s Block Plans to Buy Bitcoin Monthly
Over the past decade, Bitcoin’s rise to become one of the biggest financial assets in the world has been one of the most significant events in the financial sector. Initially created as a peer-to-peer payment system, bitcoin has grown to have a market valuation of more than $1.2 trillion. Nevertheless, an important milestone for Bitcoin is the increasing interest of small and large companies in the asset.
Recently, Block Inc. announced a DCA (dollar cost average) program for making Bitcoin investments. In this article, we will explore the recent developments around Block Bitcoin investment plans, compare them with Microstrategy, and assess their impact on the crypto market.
Details of What Block Does and How It Operates
Block Inc., which was formerly known as Square, mainly offers financial services and software that help businesses expand and grow their operations. Its focal service offerings lie in software for payment processing and analytics and point-of-sale hardware systems.
After its 2015 initial public offering (IPO), Block experienced somewhat slow growth to become one of the biggest payment companies in the world. The company posted its first annual profit in 2019.
Nevertheless, Block now offers a wide range of services, including the Cash App segment, which allows individuals and organizations to send and receive money for free through a mobile application. TIDAL is also a subscription-based streaming service. Moreover, the Point-of-Sale for Small Business is a free application that helps merchants and businesses process transactions.
Generally, the services Block offers help companies manage their finances, staff, and inventory, fulfil sales transactions, and get marketing analysis. Furthermore, merchants must pay 2.60% of the sales price plus 10 cents of any transaction they process via swipe, insert, or tap to Block. Also, Block charges merchants 3.5% plus 15 cents for every manually keyed-in transaction.
As for business analysis, Block provides businesses with a set of tools that can analyze customer data, sales, and important trends and reports. Furthermore, there’s also an online service that allows business customers to book their appointments online. Block doesn’t have many physical products, but Square Stand enables merchants to turn any iPad into a Point-of-Sale system. Block also ventured into financing small businesses with a service line called Square Loans.
Jack Dorsey’s Block Announces Buying Bitcoin Every Month
Recently, Jack Dorsey’s Block announced they will be entering into an investment strategy of buying a certain amount of Bitcoin every month. According to the Twitter co-founder, Block will invest around 10% of its gross profits from its Bitcoin products into BTC every month.
In a May 2 shareholder letter, Jack Dorsey stated that Block has better than expected Q1 results, leading to the decision to buy Bitcoin every month.
According to Jack, “Going forward, each month, we will be investing 10% of our gross profit from Bitcoin products into purchases.”
Jack Dorsey’s Block is one of the first companies to add Bitcoin to their balance sheet, and they plan to continue staying for a while. The company had purchased around $220 million worth of BTC between the fourth quarter of 2020 and the first quarter of 2021. However, in their latest earnings call, it was revealed that Block had a staggering 8,038 Bitcoin in their possession. As of March 31st, this was worth around $573 million, and they are reported to have massive profits of over $233 million.
In the first quarter of 2024, Block’s Bitcoin gross profit was around $80.1 million. Thus, if they invest in Bitcoin every month, they could spend 10% of this and buy 1,350 BTC at $59,200. But what’s their strategy?
Blocks’s Dollar Cost Averaging Strategy
Blocks’ dollar cost averaging (DCA) is unique, and the significant aim here will be for them to increase their Bitcoin holdings before discussing profit. The first thing to point out in their strategy is that they plan to buy Bitcoin monthly using TWAP orders.
Secondly, Block would like to differentiate itself from other companies by executing its trades over a shorter time window due to improved Bitcoin liquidity. The financial giant will also purchase Bitcoin over a two-hour window to strengthen its slippage while trading.
The payment company recognizes the volatility of Bitcoin, and that’s why they are trying to buy at smaller intervals instead of splashing large amounts occasionally. This way, they can prevent or evade some volatility challenges of purchasing large quantities of Bitcoin at a high price.
Comparing Microstrategy with Block
Although the two companies employ the same dollar cost-averaging strategy, they differ significantly. The differences lie in the execution, as Microstrategy has been known to be more aggressive in its Bitcoin purchases. In other words, they only sometimes have a consistent interval or percentage of purchases. They mostly enter the market anytime and buy many bitcoins worth millions of dollars.
On the other hand, Block Inc. has a more defined path to its DCA program. They have already announced that they are investing 10% of the gross profit of their Bitcoin products in BTC. This will make their purchases more frequent and help them avoid the risks of Bitcoin volatility.
Impact of Block and Microstrategy Bitcoin Investments On Crypto Adoption
Institutions like Block and Microstrategy investing in Bitcoin have a massive effect on crypto adoption and price appreciation. For instance, Block has a lot of customers and users who use their payment services for fiat transactions. However, offering Bitcoin payment products and investing in such assets provides non-crypto enthusiasts assurance of the credibility of Bitcoin. This, in turn, might entice them to invest in the asset (Bitcoin)
Secondly, institutional Bitcoin investments help to stabilize Bitcoin’s price, and there’s a reason behind this. Institutional investors like Block and Microstrategy make their investments for the long term, and they are less likely to sell off their holdings even during Bitcoin downturns. Furthermore, institutional investments lead to the introduction of new risk management techniques and advanced trading strategies. This helps create a stable and sustainable market structure for Bitcoin and the broader crypto market in the long term.
Final Thoughts on Block’s Bitcoin Purchase Decision
Block recently announced its latest venture: to allocate 10% of its Bitcoin products’ gross profits to BTC investments. This is part of their dollar cost-averaging strategy to increase their Bitcoin holdings without the extreme effects of crypto volatility. They plan to purchase Bitcoin monthly, utilizing TWAP orders and executing their trades in a shorter window. Moreover, this will have an incredible impact on Bitcoin adoption and improve its credibility.
Disclaimer: BingX does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. Readers should do their own research before taking any actions related to the company. BingX is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the article.
