What's Next for PayPal After Integrating Cryptocurrencies?
The online-transaction giant has launched a new service enabling users to buy, hold and sell digital assets. Mainstream adoption might follow.
The cryptocurrency sector went into a tailspin last week as news reports finally confirmed long-running rumors that PayPal would start to support digital assets. According to a press release on the company's website, PayPal users will be able to buy and sell cryptocurrencies — namely Bitcoin, Ethereum, Litecoin and Bitcoin Cash — within their PayPal accounts.
The news comes thanks to a partnership with regulated crypto firm Paxos Trust Company. PayPal also confirmed it had been awarded a first-of-its-kind conditional Bitlicense by the State of New York. Although the service will only be available to U.S. users for now, it seems inevitable that PayPal will seek to roll out to more countries in time.
Aside from giving PayPal users the ability to buy and sell crypto, the company's announcement came with even bigger news. The utility of cryptocurrencies will gain a major boost next year when PayPal makes cryptocurrencies available as a funding source for purchases. More than 26 million merchants worldwide accept PayPal, and the crypto integration requires no change on their part, as the company will settle all transactions in the merchant's chosen fiat currency.Related: PayPal Will Soon Let U.S. Users Buy, Sell and Shop With Cryptocurrency
For the cryptocurrency sector, PayPal's announcement is huge in terms of making digital assets available to a more mainstream audience of potential new adopters. According to one analyst on Twitter, there are around 187 million Bitcoin users, compared to PayPal's global user base of 487 million. The news sent both the price of Bitcoin and PayPal's share price skyrocketing. Bitcoin was trading up by more than $1,000 to a new yearly high of $13,000 last Wednesday, while PayPal stocks climbed around 5 percent to $211.
The First of Many Developments?
While PayPal's press release doesn't give much else away, there are heavy hints that we can expect more to come from the payment giant. It states that it's been "exploring the potential for digital currencies through partnerships with licensed and regulated cryptocurrency platforms and with central banks around the world."
Within a day of the initial news emerging, Bloomberg reported that PayPal was considering acquiring crypto custodian BitGo. Such an acquisition would mean that the company could handle custody of digital assets directly, rather than having to partner with external entities.
Those within the cryptocurrency community are speculating even more far-reaching developments. In an interview with CNBC's Fast Money, Meltem Demirors, Chief Strategy Officer at digital asset manager Coinshares, mused about whether or not PayPal was considering launching its own token. Considering its high-profile departure from the Libra Association last year, it doesn't seem to be impossible.
However, Jason Sibley, CRO at blockchain-based social media platform Hyprr, has a different take on it. "From its inception, PayPal's founders had the idea of creating a new global online currency beyond the manipulation and control of governments," he explained in a recent interview with Entrepreneur. "Arguably, cryptocurrencies have emerged in the space to fulfill the original PayPal vision, and now with PayPal announcing that it will offer cryptocurrency services to its userbase, it has come full circle."
A Case for Stablecoins
If PayPal were to launch its own currency, it seems most likely it would be some kind of stablecoin, of the kind planned by Libra. Another option would be for the company to integrate one or more of the existing range of stablecoins. The biggest one by market cap, Tether (USDT,) is currently locked in a legal battle with the New York State Attorney General over alleged fraud, making it a likely no-go for PayPal. However, thanks to the explosion in popularity of decentralized finance, other stable tokens are gaining in popularity.
PayPal already has a partnership with Paxos Trust, which has its own USD-backed stablecoin regulated in the state of New York. Kava, which issues stablecoin USDX, is run by regulated financial institutions and banks that operate nodes on the network. Kava's CEO Brian Kerr has already spied the opportunity, making an offer via Twitter to integrate USDX into PayPal's crypto service.Related: PayPal Is Launching an Ecommerce Solution to Businesses: Why You Should Jump Onboard
Which way PayPal goes next remains to be seen. However, the payment giant seems intent on bringing cryptocurrency to the mainstream, representing what could prove to be a tipping point for widespread adoption.
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