CRYPTO MOVERS AND PRICES
Crypto is up sharply over the last 24-hours as the positive PayPal announcement continues to be priced in. Spot volumes have spiked and are over 2x the 30-day average.
CRYPTO STORY OF THE DAY
Yesterday, PayPal announced their intention to launch a feature for buying, selling, and being a custodian for several cryptos for U.S. customers while also allowing customers to use crypto to make purchases with merchants integrated with PayPal in 2021 when a global rollout is expected. This is one of the most impactful corporate announcements in the space in some time.
The new feature, which will offer services in BTC, ETH, BCH and LTC, will become available ‘in the coming weeks’ according to PayPal. In an interview with Reuters, the firm’s CEO Dan Schulman said the new service is meant to encourage the global uptake of crypto and to prepare its network of users and merchants for new ‘digital currencies’ that may be developed by central banks or corporations. Schulman said PayPal is ‘working with central banks and thinking of all forms of digital currencies and how PayPal can play a role.’
As part of the new offering, PayPal was granted the first ‘conditional Bitlicense’ by the New York Department of Financial Services (NYDFS). Under the conditional licensing, PayPal will work with ‘authorized BitLicensee’ Paxos Trust Company, a crypto infrastructure provider. Paxos’ Crypto Brokerage, described as a ‘a turnkey, API-based solution that eliminates the technical and regulatory complexity’ of buying and selling crypto will provide custody and trading for PayPal. According to PayPal’s FAQ on its crypto offering, ‘[c]urrently, you can only hold the Cryptocurrency that you buy on PayPal in your account.’
Similarly to how Square initially started, crypto purchased on PayPal will be siloed, with no possibility of withdrawing the asset itself out of online wallets. The currencies included in the offering are mostly outperforming their cohorts: BTC + 5.9%, ETH +9.12%, BCH +4.76%, and LTC +12.2%. Paypal Holdings Inc (NASDAQ: PYPL) closed +5.5% in yesterday’s trading.
The potential impact of this announcement should not be underestimated. PayPal has 346 million active accounts across the globe and processed USD 222B in payments in Q2 of 2020. It also has 26 million merchants on its network. For comparison, Square had 24 million users in December 2019. In the announcement, Schulman went out of his way to give a glowing view on crypto’s future, predicting an ‘inevitable’ shift to ‘digital forms of currencies.’
These currencies, Schulman said, represent more efficient, faster, and resilient payment systems. The move is the most significant corporate foray into the space since Facebook’s ill-fated launch of Libra (of which PayPal was a member and the first company to leave). At the time, we cautiously welcomed the attention brought to crypto but warned that Libra was not a cryptocurrency and that even an eventual launch was at best unclear. PayPal’s move, on the other hand, is A) a more direct endorsement of specific cryptocurrencies and B) much more substantial to actual adoption of the asset class vis-a-vis PayPal’s substantial global user base of payers and payees.
Having said that, important details about the offering are not yet clear, such as if crypto payments to merchants will settle in fiat or crypto. Moreover, conditional Bitlicenses are meant to be temporary, with firms moving towards full licensing over time. In the meantime, conditional licensees may be subject to ‘heightened overview.’ As such, while we underline our point that this announcement’s potential ought to not be underestimated, we understand that a full scope of PayPal’s crypto offering remains unclear and, like many corporate forays into the space, will likely change over time.