The price of Bitcoin (CRYPTO: BTC) is primarily determined by the law of supply and demand. Since there’s a fixed supply of the cryptocurrency, growing demand will lead to a higher price. And demand could be increasing due to a big new buyer.
Jack Dorsey, the CEO of fintech Block (NYSE: SQ), devoted his entire first-quarter letter to shareholders to talk about Bitcoin. Among his comments, he noted Block will commit to using 10% of its gross profits from its various Bitcoin-related products to buy Bitcoin as an investment every month.
For the first quarter, Block’s Bitcoin gross profit was $80 million, which would result in an investment of $8 million in Bitcoin under the new plan. That number is an increase, though: It’s first monthly purchase in April totaled $4.4 million.
That’s a big investment, to be sure, but it won’t significantly move the market on Bitcoin, which has a $1 trillion market cap. However, Dorsey is encouraging other businesses to follow his lead, including offering sellers on Square the ability to automatically invest up to 10% of their gross profits in Bitcoin as well. And that could push demand significantly higher.
Image source: Getty Images.
Dorsey’s blueprint is easy to follow
Dorsey encouraged other business owners to invest heavily in Bitcoin by “open sourcing” Block’s investment plan. He calls it the Bitcoin Blueprint for Corporate Balance Sheets. The plan isn’t very complicated, and individuals can easily replicate it.
The core of the plan is to systematically devote 10% of Block’s gross profit from its Bitcoin products every month to purchasing Bitcoin. This is a form of dollar-cost averaging, which generally involves investing equal dollar amounts in a security over time. Consistently buying an asset over time smooths out the average price paid per unit. When the price goes up, you’ll buy fewer units, and when the price goes down, you’ll buy more. That can be a great way to accumulate a volatile asset like Bitcoin.
Dollar-cost averaging solves a lot of challenges involved with Bitcoin investing. “The price of bitcoin can be highly volatile and hard to predict as its price action doesn’t…
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