China Versus El Salvador
On the surface, you’d never guess that El Salvador and China had a burgeoning rivalry.
I’m referring to their high-stake battle in the massively important and fast-moving world of cryptocurrencies.
President Xi Jinping recently cracked down on Bitcoin mining, which sent prices of the world’s largest digital coin tumbling.
However, I’m convinced a key data point was lost in the political shuffle. It’s something I’ve discussed before- the unstoppable rise of digital currency.
Just weeks ago, El Salvador became the first nation to officially recognize Bitcoin as legal tender.
Make no mistake. This is an important milestone in the mass adoption of digital currency that now boasts a stunning $1.6 trillion market cap.
Today, I’ve got a great backend play on this space for you…
So, How Does This Make Me Money?
The company I have in mind is a fintech pioneer that just reported a stunning 2,150% earnings growth and is poised to double in as little as 18 months.
When I say that digital currencies and Bitcoin in particular are part of an unstoppable trend, you don’t have to take my word for it.
Financial giant Citigroup Inc. recently released a report showing that Bitcoin is “at the tipping point” of becoming a mainstream currency. The bank also said Bitcoin “may be optimally positioned to become the preferred currency for global trade.”
Morgan Stanley also has a horse in this race. Not only does the bank offer its wealthy clients Bitcoin funds, it also recently made a huge investment in MicroStrategy Inc., the cloud-services firm with the largest Bitcoin holdings of any public company.
Even Goldman Sachs Group Inc. is opening a cryptocurrency trading desk. According to CNBC, the bank has begun trading bitcoin futures with Galaxy Digital, the crypto investment firm founded by Mike Novogratz.
And firms like Tesla Inc. and even insurance giant MassMutual have joined MicroStrategy in buying millions of dollars of Bitcoin.
In fact, I even know about five American companies working to challenge the Xi Jinping government in blockchain, the technology behind cryptocurrency. They are also well-positioned to capture outsized shares of the $3.1 trillion that this innovation will unleash. For the sake of staying on topic, I’m going to move on, but you can learn how to play the cryptocurrency market for maximum profits. You can check it out right here.
Back to El Salvador
But while U.S. businesses are leading the commercial adoption of cryptocurrency, it’s El Salvador that has taken the pole position on the government side.
On June 9, El Salvador’s Congress voted to pass President Nayib Bukele’s bill to make Bitcoin the country’s legal tender, in parallel with the country’s current use of the U.S. dollar.
Bukele specifically touted how much easier it would be for Salvadorians abroad to send Bitcoin back home instead of dollars. Remittances like these add up to $6 billion a year, which is about 23% of the country’s GDP.
Bitcoin eliminates a lot of the overhead that comes with traditional ways of sending money. Making these transfers easier and cheaper could be a huge economic boost for the country.
Bitcoin will officially become legal tender in El Salvador on September 7. Starting then, any payments in the country will be able to be done in either U.S. dollars or Bitcoin, with the option to instantly convert one into the other.
China’s Crypto Conflict
On the other side of the spectrum, we have China, which has launched a huge crackdown on Bitcoin. Starting earlier this year, several Chinese regions have begun banning Bitcoin miners, forcing them to move or shut down.
These recent crackdowns indicate a potential nationwide ban in the future.
So, why does China want cryptocurrency out of the way?
Well, President Xi’s government would strongly prefer a cryptocurrency they can control over one that citizens and private enterprises can use to evade government oversight. Especially since Bitcoin is so easy to adopt.
Due to Bitcoin’s exceptional volatility, all this political hullabaloo has led to a price drop of more than 50% from a high of $64,000.
Yet, I believe every investor should have exposure to digital money, which brings me to…
The Essential Fintech Play
A great way to do that while avoiding all the volatility is fintech pioneer Square Inc. (SQ).
You may have heard of it. It’s a payment processor launched in 2010 by Twitter founder and CEO Jack Dorsey.
Square revolutionized both finance and retail by offering small businesses an easy, cheap, and mobile-ready way to handle credit cards, often with small card readers attached to a smartphone or tablet.
I believe this was a very savvy move. Some 28 million small businesses in just the US, accounting for around 55 percent of all retail sales, bypassed expensive point-of-sale systems.
But Square has long surpassed simply handling physical credit card payments. The firm also allowed companies to easily upgrade to accept chipped credit cards and touchless payments.
Square also is the developer of the wildly popular Cash App. Designed as a money transfer service, Cash App can also fill the same function for Bitcoin.
Using the app, a user can easily buy and sell Bitcoin, convert it into U.S. dollars, and even withdraw to or deposit from another Bitcoin “wallet.”
With Cash App, this is all just as easy as using dollars. In fact, users of Cash App can move Bitcoin between them without any fees at all.
Square and Bitcoin
For its part, Square is also directly exposed to Bitcoin. The company has bought hundreds of millions of dollars’ worth of the digital currency directly and has made a handsome profit on it, too.
For the first fiscal quarter of 2021, Square reported its Bitcoin revenue was $3.51 billion – up 1,047% from the $306 million Bitcoin revenue of a year earlier.
In total, the firm reported a 2,150% increase in their quarterly earnings. Obviously, that’s pretty extraordinary.
To be conservative, let’s instead use Square’s three-year average profit growth of 47%.
At that rate, per-share profits could double in as little as 18 months.
Add it all up and you can see that this is not just a great backend play on Bitcoin.
This is a terrific fintech pioneer that will reap rich rewards for investors for many years to come.
Cheers and good investing,
Michael A. Robinson