Can PayPal finally take Bitcoin mainstream?

PayPal has entered the world of cryptocurrency trading and it could be a very big deal for price and adoption of Bitcoin and other cryptos.

Need to know

  • PayPal account holders will now be able to store, buy and sell Bitcoin and other digital currencies - as well as use them to buy from merchants offering PayPal as a payment method.
  • The price of Bitcoin has responded positively to the news, rising to a high of $12,800- helped by a notion PayPal has already or will need to begin stockpiling Bitcoin and other cryptocurrencies to offer the service.
  • PayPal is the biggest company in the financial company in fintech to throw its support behind cryptocurrencies.
  • It follows the recent $50 million investment in Bitcoin from online payments company Square. Two big companies getting involved in cryptocurrencies is giving the industry extra legitimacy.
  • Some open questions remain. Will PayPal hold the actual amount of cryptocurrency that is stated in your account? Will this lead to more companies allocating bitcoin as part of their cash reserves?

Why is PayPal offering crypto?

Reminder: Cryptocurrency is digital money exchanged without fees between two parties online with no involvement from banks and no regulation by national governments.
There was a time when any company that said it would be involved in ‘blockchain’ that its stock would go up 10%. We’ve moved on from that but in this case PayPal is jumping in at the deep-end - going full crypto trading - not just blockchain.
Crypto-market infrastructure creaks amid volatility test | Reuters
Cryptocurrencies are growing in popularity as an investment asset but have been much slower to be adopted as a payment method. That raises the question what PayPal thinks this service will really be used for. The company said it was aiming to “increase consumer understanding and adoption of cryptocurrency.” The aim is laudable but will be difficult to achieve while cryptocurrency prices remain so volatile relative to state-sanctioned fiat money.
That said - PayPal getting involved will make this difficult aim more achievable - increasing the chance that cryptocurrencies become more widely adopted - and in effect used as a form of money - by everyday people.

Taking a leaf out of Robin Hood’s cap

It seems likely that PayPal is aiming to entice some its large 346 million active users into the high risk: reward world of cryptocurrency day trading. Like other money transfer services or online brokers, PayPal will charge a fee or spread whenever a user converts funds in and out of cryptocurrencies.
Markets Update: Retail Push Off-Exchange Volumes Close to 50% | Nasdaq
This year has seen a surge in interest in day trading - typified by US online brokerage RobinHood which offers stock trading with zero commissions. The combination of people stuck at home during lockdowns, searching for new work-from-home income streams and massive market volatility all coalesced into a massive jump in trading volumes. PayPal is putting itself in a position to tap into this newfound interest in trading and investing from retail traders.

How will it work?

For a PayPal account user to - for example - pay for their eBay auction with cryptocurrency it won’t need the merchant to accept the cryptocurrency. PayPal will exchange the cryptocurrency into whatever currency the merchant is selling in - be it US dollars, euros, Swiss francs etc. It will also be available through PayPal subsidiary Venmo.
Jack Dorsey’s Square has offered Bitcoin as a payment method in its cash app since 2018 but PayPal is taking it one step further by offering Ethereum, Litecoin and Bitcoin Cash. US users will be the first to gain access with an international rollout following next year.
PayPal has been granted the first ever conditional ‘Bitlicense’ from the New York State Department of Financial Services and will work alongside an existing cryptocurrency provider, the Paxos Trust Company.
One of the ways that PayPal is getting around accepting anonymous, unregulated and potentially illegal funds via cryptocurrencies - is that it will not accept transfers from other digital wallets. For example if you are holding some bitcoin tokens at a firm like Coinbase or Binance - you will not be able to transfer those Bitcoin into your PayPal account. Users will need to exchange fiat currency into cryptocurrency via PayPal.

Is PayPal adding crypto good for me?

PayPal management are doing this for the benefit of PayPal and PayPal shareholders. PayPal stock (ticker PYPL) did in fact gain on the news. However, with the capitalistic idea that helping oneself is the best way to help others - PayPal offering this service could serve some benefit to society. 
Per the man himself - PayPal CEO Dan Schulman
“The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access; efficiency, speed and resilience of the payments system; and the ability for governments to disburse funds to citizens quickly.” 
Note the last comment “government disburse funds to citizens quickly.” PayPal is making the same arguments we made in yesterday’s report on central bank digital currencies. The US government sent direct checks to Americans during the COVID pandemic but the process was slow and complicated. 
There are many who believe crises like COVID-19 as well as the displacement of workers due to new technology like artificial intelligence (AI) will means governments turn to universal income. It’s not impossible that governments would send every American a salary through PayPal using the efficiency of digital currency transfer.

Is PayPal bullish for Bitcoin?

Judging purely on the kneejerk reaction in the bitcoin price to the announcement from PayPal - the answer is yes!
Bullish case -
Companies like PayPal and Square getting involved in cryptocurrency are a significant step toward mainstream adoption. Bitcoin and other cryptos will move from niche investments to a regular payment method is the entire bullish case for buying cryptos in a nutshell.
Bearish case - What PayPal is offering is not for the purists! Paypal will not allow depositing or withdrawing cryptocurrencies and will not provide users with the private key associated with their coins. A private key is a cryptocurrency-owner’s secret code to access and manage their account so there are real questions over ownership. Bulls will argue that these are just baby steps towards more flexibility as PayPal keeps regulators onboard. Bears will argue that these restrictions will never go away and unleash the full merits of cryptocurrencies. 

Bitcoin chart

Bitcoin has been in a 2 ½ year holding period roughly underneath the $12,000 level. The recent move beyond $12k could be a breakout into a new bullish trend.
Thanks for reading and happy investing!

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