Jack Dorsey’s Block Inc. (SQ) faced its worst week in over three years after a damning report by short-selling firm Hindenburg Research. The allegations centered around overstated user numbers and involvement in criminal activity, sending shockwaves through the crypto community and raising questions about the future of Dorsey’s impact on cryptocurrency adoption.
Dorsey’s Support for Bitcoin
Dorsey, the co-founder of Twitter and Block, has long been an ardent supporter of cryptocurrencies, particularly bitcoin. Under his leadership, Block has played a pivotal role in promoting cryptocurrency adoption and integration into mainstream finance. However, the Hindenburg report on Block contains a slew of allegations that, if proven true, could severely damage Dorsey’s reputation in the cryptocurrency space.
Inflated User Numbers
The report claims that Block has inflated its user numbers by including fake and duplicate accounts in its “transacting active” figures, leading to an overstatement of the platform’s popularity. In addition, Hindenburg Research alleges that Block has understated its customer acquisition costs, painting an unrealistic picture of the company’s growth and profitability. The report also accuses Block of enabling criminal activity on its Cash App platform due to lax compliance controls, allowing bad actors to exploit the system for their gain.
Block issued a public statement refuting the allegations and said it is considering legal actions against Hindenburg Research, who is “known for these types of attacks.” However, the market’s response to the Hindenburg report has been swift and decisive. Block’s shares plummeted as much as 27% following the release of the report, demonstrating the potential damage these allegations caused.
The impact of this decline was not limited to Block alone. Several other crypto-related companies experienced a knock-on effect, with their share prices also taking a hit. Microstrategy (MSTR) has declined by as much as 15% since the report was published, while Coinbase (COIN) experienced a drastic drop from a high of $85.38 on March 22 to a low of $60.51 on March 27, a decline of nearly 30%.
However, the crypto market quickly bounced back, with BTC trading at over $28,000 levels at press time. In response to the Hindenburg report, Cathie Wood, the founder of Ark Invest, expressed her disagreement with its contents, stating that the report was “wildly misleading.” Following the release of the short report, Ark bought a total of 636,543 shares of Coinbase and Block in two sessions.
Despite the controversy surrounding Block and Dorsey, the company’s first investor day in five years on May 19, 2022, emphasized that the company has evolved significantly from its roots as a payment processor, expanding its offerings in various sectors, including crypto and music streaming.