PayPal finally announced its entry into the cryptocurrency market this week, to the delight of the virtual asset industry and its markets.
The payments giant said it has been granted a crypto license in New York and is partnering with crypto company Paxos to integrate crypto services.
From early next 2021, around 350+ million active customer accounts will be able to shop at its 26 million-strong retailer network using leading cryptocurrencies Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. There may also be plans to develop its own cryptocurrency after it withdrew from Libra last year.
The PayPal announcement marks a major milestone in the mainstream adoption of crypto assets and is one that has been anticipated for years.
PayPal CEO Dan Schulman said in a press release that the shift to digital currency was inevitable. The company is committed to working with banks and regulators around the world to help shape the role of digital currencies in the future of the global financial and trading system.
Crypto market reaction
Buoyed by the news, the price of Bitcoin reached a high mark for 2020, crossing the important psychological threshold of $13,000 in its aftermath. The other supported digital assets also jumped in their value.
This comes after a tough few weeks where several U.S. regulatory actions like the DoJ’s Crypto Framework, the CFTC’s BitMEX charges and FinCEN’s new “Travel Rule” proposal have dampened the sentiments of the crypto market a bit.
PayPal and Paxos (and Venmo)
PayPal’s involvement with crypto comes after several other companies such as Apple recently announced plans to accept or integrate crypto payments into their businesses.
The payments giant has teamed up with Paxos Trust Network to offer the crypto services and help with integration and has been granted a conditional cryptocurrency license from the New York State Department of Financial Service (NYDFS). Called the BitLicense, it is highly coveted and has been notoriously hard to get for other companies in the past.
PayPal has further announced an expansion to Venmo and other countries in the first 6 months of next year. Read the official Paxos announcement here.
The PayPal-Paxos partnership is considered significant by crypto analysts and points to a strategic longterm plan, as discussed later in this article.
PayPal’s recent crypto history
Crypto supporters have claimed for years that cryptocurrencies largely remove the need for banking and payment intermediaries like PayPal to exist at all. For long PayPal was seen as a service that virtual currencies would eventually replace.
Despite this, crypto evangelists and even Bitcoin maximalists have been largely supportive of this news due to PayPal’s high profile and worldwide reach as a payments giant.
The company made headlines when it was initially unveiled in 2019 as one the Libra Association’s network, but then dropped out due to escalating regulatory pressure with others in October 2019.
In July 2020, rumours started circulating of a planned crypto-integration with Paxos. This was met with some criticism as PayPal has long been condemned for its high transaction fees and perceived unfair practices, such as a lack of transparency and lackluster customer service.
Which cryptocurrencies will PayPal support?
PayPal will therefore have a cryptocurrency wallet where users can buy, sell and hold crypto in the PayPal app, as well as buy and sell. In addition, PayPal users can purchase crypto through PayPal’s mobile app or through the company’s website or PayPal wallet.
Why is PayPal’s crypto adoption important?
PayPal’s embrace of crypto assets is very significant for the crypto industry.. The company is a global payments giant and its app Venmo is one of the biggest digital wallet networks in the world.
PayPal is one of the world’s biggest global payment providers and the 30th biggest bank in the United States in terms of deposits. It boasts nearly 350 million active accounts and $222 billion in volume processed in Q2 2020 alone.
Ironically, with the announcement, the value of Bitcoin has now “flippened” that of PayPal. Customers will be able to shop with virtual assets at its network’s 26 million merchants starting in early 2021.
Payments will be made through PayPal’s existing crypto merchant solution, rather than through a traditional payment processor. That means dealers will get fiat when they accept crypto, according to a report from Bloomberg.
Will Paypal acquire crypto companies like BitGo?
PayPal is reviewing a number of purchases by cryptocurrency companies, including Bitcoin depository owner BitGo, Bloomberg reported, citing people familiar with the matter.
BitGo CEO Mike Belshe declined to comment on the report, but given that PayPal’s new cryptocurrency would effectively be its depository, the company’s reported interest in BitGo could not be explained.
BitGo was the first US cryptocurrency company to secure a broker license who registered as transfer agents, recognized by a trust company, which enabled it to offer custodian documentation and services.
What does the future hold for PayPal and crypto?
PayPal’s involvement, support and expertise could be vital to help the crypto industry overcome long standing problems with price volatility, transaction speed and costs that have slowed down its mass adoption.
PayPal users’ increased uptake of cryptocurrencies may significantly boost the market and foster more stability and innovation. Importantly, it will “normalize” the owning and usage of crypto.
Industry heavyweight and early Ethereum whale Mike Novogratz called the news “the shot heard across the world on Wall Street”. He thinks that PayPal has big plans over the coming decade. Especially its alliance with Paxos, the issuer of the highly regarded USD-pegged stablecoin and crypto custodian, is significant.
“We are going to see, over the next 10 years, a rebuilding of the financial infrastructure of this country …it was interesting that PayPal hired Paxos to do their integration with crypto because there’s a domain expertise in this cryptocurrency space, in this blockchain space, that’s needed.”Mike Novogratz
Novogratz attributes the accelerated adoption of crypto not only to Bitcoin’s new ascent, but also the Covid-19 pandemic which is driving the digitalization of fiat cash and financial services.
Some industry executives also expect PayPal to launch its own cryptocurrency in 6 to 12 months to help facilitate easier transacting. Almost certainly such a crypto asset would be a digital dollar stablecoin, with a fixed value that is backed by real-world assets.
Unlike Libra’s announcement last year (which also boosted Bitcoin’s prices), it seems like PayPal has taken the biggest lessons from that and applied it in order to keep both the authorities and industry happy.
With this considerable shot in the arm from a Fintech giant (and its global network of users and retailers), crypto is surely another giant step closer to mass adoption.
Written by Werner Vermaak
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