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Bitcoin Gets Boost From Square; Tech Companies In Governments' Crosshairs

By Andy HechtStock MarketsOct 27, 2020 12:51PM ET
www.investing.com/analysis/bitcoin-boosted-by-square-tech-companies-in-crosshairs-of-governments-200542473
Bitcoin Gets Boost From Square; Tech Companies In Governments' Crosshairs
By Andy Hecht   |  Oct 27, 2020 12:51PM ET
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This article was written exclusively for Investing.com.

  • SQ invests $50 million in Bitcoin and the digital currency edges higher
  • Packed month for Twitter and Square CEO Jack Dorsey

  • Controversy over censorship and money supply

  • A grilling from Washington on content moderation, election interference
  • The technology sector faces headwinds in 2021

Bitcoin and digital currencies peaked in late 2017 when the price of the crypto leader soared to the level of $20,000 per token. The market cap of all cryptocurrencies climbed to a high of over $800 billion and looked like it was only a matter of time until it reached the one-trillion-dollar mark. That, however, has yet to occur as those high levels were not sustained.

Last week, the market cap was approaching the $400 billion level. Bitcoin had been trading on either side of $10,000 as the price consolidated at its midpoint between the six cent level of 2010 and the $20,000 level in 2017. Then late in the week, it took off on the upside to over $13,000 per token.

SQ Invests $50 Million In Bitcoin

The CFTC in the US classifies digital currencies as commodities. While the raw material asset class tends to be the most volatile, cryptocurrencies have displayed an even higher level of price variance over the past years. Trading at just six cents per token in 2010, in 2017, Bitcoin soared the $20,000 level. On Oct. 25, the leader of the digital currency asset class was at the $13,298.0 level, a new high for 2020.

Square, a high-tech payments and point-of-sale solutions company, announced that it purchased 4,709 bitcoins, worth $50 million. The average price was just below $10,620 per token.

As the daily chart highlights, Bitcoin appreciated by over $2,500 per token since the announcement through the Oct. 22 high of $13,140 level.

Bitcoin Daily
Bitcoin Daily

Source: CQG

The investment aligns with the SQ’s mission. The company believes that bitcoin and cryptocurrencies are instruments of “economic empowerment.”

Packed Month For Twitter And Square CEO Jack Dorsey

Innovator and entrepreneur Jack Dorsey holds a unique position in the technology sector as the CEO of two publicly traded companies, SQ, and Twitter (NYSE:TWTR).

Dorsey is also a co-founder of Twitter and the founder of Square. October has been a busy month for the high-profile CEO. One of his companies made a statement on digital currencies, placing a bet on the futures of digital currencies. The other business found itself in the crosshairs of the US government as some senators in Washington DC are accusing TWTR of election interference.

The payments company and social media platform have a combined market cap of over $120 billion. SQ’s market cap of over $78 billion is around twice TWTR’s. However, TWTR has a higher profile these days since tweeting has become a powerful tool for many segments.

President Trump became the “tweeter in chief” during the 2016 campaign and after being elected as the forty-fifth President of the United States. The President claims that Twitter has been an invaluable tool for him to communicate with his supporters, given his opinion that traditional news media provides what he calls “fake news.”

SQ’s bitcoin purchase and TWTR’s status as a leading media platform are putting Jack Dorsey in the crosshairs of Washington DC, and the pressure could continue to mount over the coming months and into 2021.

Controversy Over Censorship And Money Supply

A New York Post story that accused former Vice President Joe Biden’s son of questionable business relationships caused a firestorm over the past two weeks. TWTR decided to ban the information, and Facebook (NASDAQ:FB) did the same. TWTR suspended some accounts of those re-tweeting the story, causing more than a little pushback from Republican Senators.

Jack Dorsey and Mark Zuckerberg, the founder, and CEO of FB, will now testify before the US Senate to explain why they decided to ban the story from one of the leading newspapers in the US and the rationale for suspending accounts. Some legislators are accusing the companies of election interference by censoring the information. The TWTR and FB platforms have protection under Section 230 of the Communication Decency Act that says that “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provide by another information content provider.” Some legislators are likely to contend that Dorsey and Zuckerberg’s decision to censor the NY Post story was an act of censorship, which should eliminate protections under Section 230.

Meanwhile, aside from the censorship issue, Dorsey’s other company, SQ, has something in common with FB that could make the hairs on the back of Congress’s neck stand up. In 2018, Jack Dorsey said that he believes that digital currency will eventually become the world’s “single currency.” In 2019, Zuckerberg’s Facebook rolled out a plan for its Libra token, another digital currency instrument. There has been a bipartisan agreement in opposition to digital currencies. The US and other governments worldwide control the money supply as they issue legal tender. A move away from traditional currency instruments to cryptocurrencies would limit or even eliminate that control.

A Grilling From Washington

The CEOs of TWTR and FB, together with Alphabet’s (NASDAQ:GOOGL) Sundar Pichai, will appear before the Senate Commerce Committee via videoconference on Oct. 28. The CEOs will face questioning about their policies for moderating content on their platforms.

The hearing will focus on Section 230 of the Communications Decency Act and eventually could lead to moves to remove the protections for the platforms. Democrats and Republicans in Washington DC have expressed concerns over the power of social media and the influence of the leading technology companies when it comes to anticompetitive practices and access and use of data. Last week, the Us Department of Justice accused GOOGL of antitrust violations.

I would not be surprised if digital currencies come up at the Oct. 28 event or subsequent hearings. The Senate committee formerly invited the CEOs with the threat of subpoenas if they balked at appearing.

Technology Sector Facing Headwinds In 2021

With the highly contentious election coming on Nov. 3, Democrats and Republicans in Washington DC agree on virtually nothing these days. However, in the aftermath of the contest, we are likely to see elected representatives take action against the leading technology companies. While each political party has different reasons, there is bipartisan support for reigning in the companies’ power and influence.

Increased regulation and even breakups of some of the companies could be on the horizon. The US is not the only government concerned about the issue as the EU has also been making moves to limit the rise of the technology companies. The investments and support of digital currencies is another issue that steps on the toes of governments. Expect lots of volatility in technology shares over the coming months. Governments and regulators could put legislation in place that limits their activities, cuts them into smaller and unrelated entities, and weighs on earnings.

Meanwhile, Bitcoin and other digital currencies had been consolidating over the past months. The blockchain technology has wide acceptance, but governments worldwide are not likely to surrender control of the money supply to a global means of exchange any time soon. However, bitcoin, the leader of the pack, has taken off on the upside with the next target at the 2019 high of $13,915 per token. Above there, the 2017 peak at over $20,000 comes into play.

Bitcoin Gets Boost From Square; Tech Companies In Governments' Crosshairs
 

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Bitcoin Gets Boost From Square; Tech Companies In Governments' Crosshairs

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Comments (2)
Alan Rice
Alan Rice Oct 27, 2020 2:26PM ET
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Crypto currencies: fake.
hami Durmaz
hami Durmaz Oct 27, 2020 2:26PM ET
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some of them yes but big ones are not fake but still big whales and https://investing companies may manipulate . small fishes like personal investors always dissapoints after big dumps ... so control in their hands really. it came from 3700 dolars . big chinese whales kept it warm .. paypal was breaking point . we will see where it goes ... don't invest the money never effort to loose it's for crypto expecially .
Plopseven Schwartz
Plopseven Schwartz Oct 27, 2020 2:26PM ET
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I love the idea of BTC (hardcap especially) but the ramp from $0.06-$14,000 in a decade is worrysome. The early adopters have 233,000x more leverage than whoever buys in now, which makes ponzi schemes seem fair and balanced by comparrison.
la popeye
la popeye Oct 27, 2020 6:01AM ET
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