said Wednesday it will allow users to buy and sell Bitcoin, a major development for the cryptocurrency that considerably expands its potential investor base. And the company made another announcement that could change public perception of Bitcoin: Starting next year, PayPal plans to allow them to use Bitcoin to buy from the 26 million stores that are signed up with the fintech company.
PayPal’s (ticker: PYPL) announcement comes as the price of Bitcoin has risen in recent days. It is up to $12,400 as of Wednesday morning, 72% higher on the year. Mike Novogratz, who runs investment firm
Galaxy Digital Holdings,
called the PayPal announcement “the biggest news of the year in crypto” in a tweet. “All banks will now be on a race to service crypto. We have crossed the rubicon people.”
It is arguably even more beneficial to PayPal stock, which was up 4.1% on Wednesday morning. PayPal says it will not charge fees or otherwise make money off Bitcoin buying and selling this year, though it will start charging “a transaction fee depending on the amount of crypto you buy/sell” in 2021.
PayPal doesn’t plan to hold Bitcoin on its own balance sheet. It is partnering with a cryptocurrency service firm, called Paxos Trust Company, to complete the transactions.
While Bitcoin was meant to dislodge the power of traditional finance, it seems to be becoming a kind of side gig for financial behemoths. PayPal’s market cap of $245 billion is worth more than all the Bitcoin in the world, which is valued now at $230 billion. The stock’s 4% bump on Wednesday is worth more in dollar terms than Bitcoin’s 24-hour return of 3.6%.
For PayPal, adding Bitcoin may help keep its users engaged, one analyst noted. Bitcoin adoption “can drive a lot more engagement and user interactions for the likes of PayPal,” wrote Darrin Peller at Wolfe Research.
PayPal has more than 300 million customers around the world. Allowing them to invest in cryptocurrencies makes PayPal, in some sense, an investment firm. Competitors like
(SQ) already allow people to buy and sell Bitcoin, as does investing app Robinhood Markets. Other brokers have been more hesitant to allow people to buy and sell Bitcoin, which is highly volatile. Critics argue that it has no intrinsic value and should be avoided by most, if not all, investors.
(IBKR), an online brokerage that caters to more sophisticated investors, allows Bitcoin futures trading, but a spokeswoman said they don’t have much demand for direct crypto trading and don’t offer it.
PayPal’s decision to allow customers to buy and sell items with Bitcoin comes with a twist—the merchants aren’t actually accepting Bitcoin. Their Bitcoin will be turned into fiat currency, like dollars, at market prices before it is sent to merchants. That seems to go against the original purpose of Bitcoin, which was designed by a pseudonymous creator called Satoshi Nakamoto who believed it could be used for direct payments without intermediaries.
Meltem Demirors, the chief strategy officer at digital asset management firm CoinShares, called the PayPal move “a great validation,” but one that in some sense feels “sort of antithetical” to the broader ethos of cryptocurrency. “It almost feels like adding crypto is a feature for many fintech networks.” PayPal is introducing more of “a walled garden,” she said.
“Realistically speaking, people can’t move their cryptocurrencies out of the PayPal environment, so really what they’re getting is speculative price exposure to cryptocurrencies,” she said. “They’re not able to interact with other cryptocurrency service providers.”
Demirors expects that PayPal will eventually go further and introduce its own digital coin.
“Really what this does is it sets the stage for PayPal launching its own dollar-pegged digital currency within their payment network to reduce their dependence on the correspondent banking system and other card networks, which is what
has done with Libra,” she said.
The internet also started out as a series of Intra-nets where companies often walled off their networks. She expects those walls to eventually fall, and for Bitcoin to be the dominant currency.
Write to Avi Salzman at [email protected]