PayPal's Bullish Move into Cryptocurrency
Updated: Jan 26
PayPal was originally founded in 1998, and to this day it is one of the most popular online payment systems in most countries that support online currency transfers. In October 2020, the company issued a press release announcing they would enable PayPal users to buy, sell, and hold cryptocurrency. This was a momentous announcement, considering many people are still wary of digital currency and its future. PayPal has a history of being a leader in the online payment platform environment, so this bullish move and bet on the future is perfectly aligned with the company’s forward-thinking approach.
In 2002, eBay bought PayPal for $1.2 billion, a successful partnership in which 70 percent of all eBay auctions accepted PayPal payments, and eventually, the platform became the go-to payment for eBay users. As the company and brand continued to grow, it moved into its own publicly-traded company apart from eBay later. As a publicly-traded company, it continued to acquire and partner with other companies with exponential growth. Today, PayPal serves over 286 million active users on its platform alone.
With the new move into the crypto market, PayPal will allow their users to choose from cryptocurrencies such as Bitcoin, Ethereum, Bitcoin Cash, and Litecoin directly through their PayPal digital wallet. In this press release, PayPal announced that the New York State Department of Financial Services had given them a “first-of-its-kind conditional Bitlicense.”
They offer many articles about crypto for beginners on their website, and you can start investing in crypto through their app with as little as $1 in your PayPal wallet. Furthermore, users will enjoy the same protections and security they already benefit from investing in crypto as they do with PayPal’s standard features. The company has also hinted at possibly developing their own cryptocurrency in the future, which could mean lower fees and higher profits without the need to depend on banking fees and other related expenses. However, crypto investors using PayPal will not be able to have private keys to their funds since Paxos, another centralized exchange will be controlling PayPal’s new service.
The concept of cryptocurrency, originally outlined in 2009, is still relatively new. In the years since then, its potential impact on the economy, both in terms of its advantages and disadvantages, are still widely debated. There are several types of cryptocurrency, but Bitcoin remains the most popular. Some see this new digital currency as the way of the future, urging others to invest as soon as they can to watch their money grow in the coming years. Its most ardent supporters point to certain advantages they see in the digital currency, such as user autonomy, discretion, lower fees, and a higher level of accessibility. They also view this as a trustworthy alternative in an ever-changing financial climate, citing fears that the value of the dollar could decrease exponentially. Using a digital currency could protect against a potential debasement or depreciation of the dollar.
The day of the announcement that PayPal would support cryptocurrency purchases and sales, Bitcoin’s value rose 8%, reaching its highest level since July 2019. In an interview with CNBC, PayPal’s CEO Dan Schulman said ”It’s not a matter of not if, but when and how you’ll start to see more central banks issue forms of digital currencies, and I think there will be more utility with cryptocurrencies.” He also noted that the company will allow cryptocurrencies to be used as a source of funding for any transactions made through the platform, increasing its value and position as a true currency. In addition, in light of last year’s shift towards more remote working and schooling due to the COVID-19 pandemic, Schulman noted that cryptocurrency adoption would increase rapidly. The CEO said he is “bullish on digital currencies of all kinds.” He has also stated that he believes digital currencies could improve transaction costs and facilitate more financial access.
PayPal is not the only business of its kind eyeing the crypto industry. Square introduced similar cryptocurrency trading features on their Cash App, a direct competitor to PayPal. The two companies have gained 100% of the new supply of bitcoins, according to the crypto hedge fund Pantera Capital. This may lead to other similar companies introducing cryptocurrency as well, driving up its value even more. If such business moves continue to boost the value of Bitcoin and other forms of cryptocurrency, it could very well be the way of the future.
However, there are some concerns and questions regarding PayPal and how much centralized control this will give them over the crypto market. Mizuho Securities Analyst Don Dolev forecasted that PayPal will earn up to $2 billion in revenue from its Bitcoin business by 2023. Delov cites “a dramatic increase in engagement due to crypto, with 50% of PayPal crypto users opening the app daily.” In his survey of the app’s new feature, Dolev also discovered that Bitcoin investors in the PayPal app opened it three times as much as PayPal users that do not invest in Bitcoin through the app. Another analyst predicted that PayPal’s crypto feature should contribute up to $600 million to the company’s revenue for 2021.
Although Bitcoin and other cryptocurrencies seem to be going more mainstream, some analysts and experts remain skeptical about PayPal’s Bitcoin feature making a difference for Bitcoin at all. It is certainly good for PayPal as it could attract more investors to the platform and have more of their users on it daily, and Bitcoin prices have gone up since the announcement, but it does not necessarily mean it will alter the long-term trajectory of the currency.
Since Bitcoin and other forms of cryptocurrency have become more popular in recent years, investors have had growing concerns about banks and government systems attempting to regulate and control the crypto market. Governments are mostly averse to the idea of cryptocurrency, citing the lack of central authority and peer-to-peer concept as top concerns. This lack of authority could potentially lead to some Bitcoin traders using it for buying and selling illicit and/or illegal items, avoiding capital control, tax evasion, and possibly even laundering money. Besides that, they are aware of the potential role this crypto market could have in hurting control of central banks and rendering them irrelevant.
According to a Business Insider article, this week Janet Yellen, U.S. President Joe Biden’s treasury secretary, suggested that lawmakers should start to “curtail” the use of Bitcoin amid terrorism concerns. She believes most cryptocurrency transactions are used only for “illicit financing.” This raises fears about the new administration wanting to focus more on ramping up cryptocurrency regulations, which could spell bad news for the likes of Bitcoin.
The same article noted that Warren Buffet has expressed similar concerns in the past, saying last year that “Bitcoin has been used to move around a fair amount of money illegally." He added that investors should "go short on suitcases," as criminals would no longer need them to carry cash. There was also a proposed regulation recently that would require online money services to collect data about their users who buy, sell, and hold cryptocurrency on their platforms.
Such regulations would take away from some of Bitcoin’s strongest selling points: discretion, ease-of-use, no third-party involvement, and lack of government regulation. It would also reduce the potential for other similar cryptocurrencies to be successful in the future and give governments the authority to regulate the price of these assets. To begin thinking about regulating cryptocurrency, nations would likely have to come to an agreement with each other on trade policies for such fiat currencies. There are still many arguments over whether cryptocurrency should be regulated at all.
The cryptocurrency community has mixed feelings about whether PayPal’s bullish shift into the crypto market will maintain its success, considering users will not yet be able to withdraw their funds from the in-app Bitcoin feature. Investors are hopeful that PayPal will adapt and be able to increase visibility and engagement more within the crypto market. Regardless of your beliefs or predictions about the cryptocurrency market, PayPal’s move to enable crypto payments helped solidify their value, giving them more mainstream appeal. Receiving public support and partnership from a large, successful company such as PayPal may even generate more interest in buying and selling cryptocurrency.