Bitcoin may weigh on tech stocks again. Investors should beware.

Payment application

Square

(SQ), meanwhile, also continued its decline, down 4.3% to $ 227.09. The company’s relatively strong earnings report on Tuesday included investments and operational gains from Bitcoin, and the company said it plans to ‘double’ the digital coin. This may weigh on the stock, which has fallen nearly 20% in recent sessions as Bitcoin prices have fallen.

Technology is under pressure for other reasons: high valuations have left the sector vulnerable to weak business forecasts. Rising bond yields pose a threat by putting pressure on the present value of future cash flows. Big Tech is also a congested trade that could fall out of favor as investors seek more cyclical exposure or sectors with lower valuations.

But the business models of Nvidia, Square,

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(TSLA) and other stocks may also be a sign of Bitcoin’s growing influence. Companies are investing capital directly in Bitcoin and related products and services, increasing their exposure at a time when prices have skyrocketed by more than 350% in the past year. Despite its recent decline, Bitcoin is still up 67% this year.

Crypto is certainly gaining momentum.

MasterCard

(MA) said this month that it will start supporting cryptocurrencies directly on its network, noting that many consumers are already using cards to purchase crypto assets. But it would still be difficult to turn Bitcoin into a viable currency for everyday purchases, a

MasterCard

the executive noted at a conference Thursday.

“Bitcoin doesn’t behave like a payment instrument,” said Ann Cairns, executive vice president of Mastercard, according to a report on MarketWatch. “It’s too volatile and the transaction takes too long.”

Whether it becomes an asset class or a payment instrument, the rise (and potential fall) of Bitcoin is tearing corners of tech, banking, and other sectors.

Nvidia, for example, released an impressive revenue report, like Barron’s Noted. But it’s also increasingly becoming a crypto game.

The company said crypto may have had a positive impact of $ 100-300 million during the quarter. The company is launching a new line of cryptocurrency mining processors, or CMPs, for professional crypto mining.

“Cryptocurrencies have recently started to be accepted by businesses and financial institutions and are showing more and more signs of resistance,” Nvidia told investors. Its new line of CMPs will give the company more visibility into crypto’s contribution to revenue, the company added.

Some analysts question the sustainability of the trend. Piper Sandler’s Harsh Kumar reiterated an overweight rating on stocks, for example, but cautioned against Nvidia’s growing exposure to crypto.

“With cryptocurrency re-entering the picture, the line between crypto and the base game is blurred,” he writes. “We believe investors may question the sustainability of these trends, especially given cryptocurrency issues in the past.”

The Square payments app, as noted above, is also now squarely in the Bitcoin debate. While basic business trends look healthy, investors may fear Square is expanding into crypto as prices peak. The company purchased $ 170 million worth of Bitcoin during the quarter, in addition to the $ 50 million previously purchased, and markets its Cash app as a mechanism to buy, store, and potentially transact with the cryptocurrency.

Wall Street has mixed opinions on this idea. Competitors like

PayPal funds

(PYPL) is also launching into Bitcoin, with other “neobank” competitors, notes JMP analyst David Scharf. This raises questions about the long-term “stickiness” of Cash App and whether its growth can be sustained.

Indeed, Cash App now accounts for roughly half of Square’s gross profits, and the company relies on Bitcoin to fuel demand. This makes Square Stock a kind of derivative on Bitcoin; stocks have been increasingly correlated to the price of Bitcoin over the past year, and the relationship can only grow closer.

The square stock may also not fully reflect the volatility of Bitcoin, which has seen several boom-bust cycles. At around 100 Ebitda estimated at 2022 (earnings before interest, taxes, depreciation and amortization), the stock appears fully valued, according to Scharf, who maintained a Market Perform rating.

Jeff Cantwell of Guggenheim took the opposite view of this debate. It upgraded Square stock to a buy on Thursday, in part on a bullish outlook for Bitcoin. “We believe Bitcoin is on a higher long-term trajectory,” he writes, adding that this should lead to increased use of the Cash app and other metrics.

He doesn’t see Bitcoin becoming a currency used for mainstream shopping anytime soon. But that’s not the point, he notes, since Bitcoin is turning into “digital gold” – a store of value and an asset class. There are 50 million digital Bitcoin wallets around the world, a large and growing user base, he notes. Square is doing its part to integrate Bitcoin.

Cantwell sees Square’s stock reach $ 288. Bitcoin may have to do its part for the stock to succeed as well.

Write to Daren Fonda at [email protected]