Why was the block stock falling today

What happened

Actions of Block (SQ -11.62%) were falling today along with the broader market as fintech stocks were hit by a number of different concerns today.

The block was down 10.5% at 10:38 a.m. ET, while the nasdaq it had fallen 3.8% at the same time.

Growth stocks fell sharply as S&P 500 entered a bear market and investors braced for faster rate hikes and higher recession risk. As a lender and payment processor for small businesses, Block, formerly known as Square, is particularly at risk, as higher interest rates make it harder for businesses to borrow and grow, as does a heightened risk of a recession.

Additionally, cryptocurrencies fell sharply over the weekend after crypto lender Celsius Network suspended withdrawals due to “extreme” market conditions. Interpreted another way, the company could be trying to avoid a run on deposits, since the lender will fail if too many users try to withdraw their money at the same time. Binance, the world’s largest cryptocurrency exchange, has also been temporarily halted. Bitcoin withdrawals this morning due to a “stuck transaction causing a delay”.

Block has a significant amount of Bitcoin on its balance sheet, supports Bitcoin transactions through its Cash app, and CEO Jack Dorsey has been a keen Bitcoin enthusiast, so it’s not surprising that a drop in Bitcoin, which fell 15% in the last 24 days. hours, it would add to Block’s problems.

And that

The cyclical nature of interest rates and recessions seems less of a risk to Block than the implosion in the crypto market. All fintech stocks, including peers like PayPal Holdingshave pulled out of the general market sell-off, but Block has attempted to differentiate itself from its peers by moving aggressively into Bitcoin, crypto, and decentralized finance, and Dorsey clearly believes in the potential of that space.

Coming just a few weeks after the top 10 cryptocurrencies Land collapsed, an implosion in an exchange like Binance could crush the crypto market permanently, ending trust in the institutions that are supposed to safeguard access to blockchain-based tokens.

Now what

As of its first-quarter earnings report, Block continues to grow and is profitable on an adjusted EBITDA basis, but a recession would weigh on the company’s performance, and with consumer confidence falling rapidly, that seems likely.

Square has branched out from its small fintech roots to include Cash App; music streaming service Tidal; business buy now pay later Afterpay; and TBD, its decentralized finance arm. That combination makes it difficult to accurately assess the company, since it has no true peers. Above all, a bet on Block at this point appears to be a bet on Dorsey to navigate the future of payments and finance.

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