Payment company Square got the green light from regulators Monday allowing New Yorkers to trade cryptocurrency on the rapidly growing Cash app.

While Square launched crypto trading through its payments app in late January, that feature had been unavailable in New York.

"That was one of the missing pieces in their puzzle," Nomura Instinet analyst Dan Dolev told CNBC. "They had approval in most states, but New York was by far the biggest one where you couldn't trade bitcoin."

The New York State Department of Financial Services granted Square a virtual currency license, which gives the company access to an "expanding and well-regulated virtual currency market," Superintendent Maria T. Vullo said in a statement.

Square, run by Twitter CEO Jack Dorsey, already holds a money-transmitter license from the department.

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The app launched in 2015 and is growing at a faster rate than PayPal's Venmo, according to Nomura Instinet. Since early 2016, downloads on Square Cash app downloads averaged 128 percent year-over-year growth each month versus Venmo's 74 percent growth, according to Nomura.

The department approval could boost already rapidly-growing downloads, and expand what users can do with the Cash app, Dolev said.

"This announcement gives people another excuse to download the app," he said, adding that it might not move the bottom line right away but "definitely helps from a marketing perspective."

Shares of the company have surged 88 percent this year, and hit a record around $65 Monday, up more than 2 percent on the day.

The fintech company had 7 million active customers on its money-transfer app in December alone, Square said in its recent quarterly letter to shareholders. Many of those customers have been using the Cash app more like a bank account than the company intended, Dorsey said in May.

While that wasn't a goal, Dorsey said Square plans to "lean into" the trend, and has already signaled plans to break into banking.

Square filed for an FDIC license to be an industrial loan company in Utah, American Banker reported in September. The license would allow it to perform some of the same services as banks, including issuing loans without having to rely on a bank to originate them and without having to get licenses in each state.

Square is the ninth firm approved for cryptocurrency trading in New York. The Department of Financial Services has also granted licenses to companies like Coinbase and Circle and has granted charters to Gemini Trust and Paxos, formerly known as itBit Trust.

The so-called BitLicense has been notoriously difficult to get, and New York is considered one of the strictest states when it comes to regulating cryptocurrency firms.