I/O Fund’s Interview with CoinDesk: Why Square’s Name Change to Block is Defensive

Beth Kindig shared her views on Square’s name change to Block, Jack Dorsey stepping down as Twitter’s CEO, and the upcoming opportunities to watch in an interview with CoinDesk.

Here’s an overview of the discussion.

Square is technically getting disrupted by Blockchain and this is prompting Jack Dorsey to embrace Bitcoin. I had discussed this two years ago in an article for MarketWatch where I stated the following:

“Finance is changing rapidly through mergers and acquisitions, but not rapidly enough. There will be tremendous pressure for traditional payment processors to get with the times and adopt blockchain, or else they will be left behind by lower-cost competitors …. The real value to consumers and merchants has yet to be seen. Square may have replaced cash registers, but the fees the company charges are as old-school as ever. Square charges 2.6% plus 10 cents per transaction … Digitization in the finance industry is built atop age-old infrastructure and ignores the most obvious area in need of disruption: transaction fees. Visa and Mastercard are making acquisitions to remain relevant and competitive, while PayPal and Square are getting on more devices with peer-to-peer apps such as Venmo and Cash App. Those moves won’t lead to massive growth. An overhaul of the infrastructure via blockchain will take some time, and only then will investors enjoy serious investment returns.”

The fees that Square and other fintech names charge are the fees that blockchain promises to disrupt over time. We do not think Square is pushing for Bitcoin adoption and changing its name to Block out of strength, rather we think this is a defensive move.

Regarding Twitter, Beth Kindig points out in the interview that the social media site has many bots which can affect the number of advertisers on the platform sees. According to a Pew Study, 66 percent of tweeted links are shared by bots. Most websites do have some bot traffic at an estimated 29 percent, therefore some of this is unavoidable. The reason Twitter has higher bot traffic is because it does not require a network of friends/family to have a presence and someone with a very low follower count or brand new account can immediately click on ads and links. The CTO of Twitter has recently become the CEO, Parag Agrawal, and these problems are likely to persist under the new leadership as they did when he led the technical side.

How to Find the Next Opportunity

Cloud has been very resilient and we believe this sector will perform well during times of high inflation. We also think the market is currently oversold with the Russell 2000 index being more oversold than during March of 2020. During these times of indiscriminate selling, we stay firm on product and fundamentals as cloud, for example, drives down costs for the companies.

We believe the current sell-off was driven by a high inflation number rather than the Omicron variant. We believe Bitcoin will perform well during times of inflation while more speculative and high beta stocks will not perform well, such as IPOs. The bottom line will also begin to matter more.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.