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Big news for investors and consumers – Paypal has entered the cryptocurrency market. From October 2020, it will now be possible to buy and sell digitally-based currencies such as Bitcoin using a Paypal account. This has the potential to provide another huge shot in the arm to the growth of cryptocurrencies, given that over 26m sellers worldwide accept payment via Paypal.
In this article, our team here at Bure Valley Group explores the implications of this latest news for the growth and development of cryptocurrency investments as we enter 2021. We hope you find this content helpful.
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Bringing crypto-payment more into the mainstream
One of the challenges faced by cryptocurrencies for some time – which they have been fighting hard to overcome – is that, even in 2020, they still remain a niche payment method. Bitcoin, for instance, has seen a lot of success to date in Japan (where over 250,000 retailers and food stores accept it as payment), whilst companies such as Microsoft, Playstation and Xbox also allow Bitcoin transactions. However, in the majority of cases globally, merchants still lean mostly on fiat currencies for payment.
Paypal’s acceptance of cryptocurrencies has the potential to change this landscape in 2021 and beyond. President and Chief Executive of Paypal Dan Schulman, for instance, has argued that the move will “Encourage global use of virtual coins” and help ready Paypal for “new digital currencies that may be developed by central banks and corporations”. Initially, using Paypal to buy, hold and sell cryptocurrency will be available to U.S account holders – with plans for further expansion to other countries in 2021.
The announcement is the latest in a string of fintech companies which have been steadily lining up to accept cryptocurrency transactions. Other recent examples include the mobile payments provider Square Inc, as well as the stock trading app firm Robinhood Markets Inc – whose users represent 24m and 13m, respectively. Paypal, however, is arguably the biggest news out of the three given its huge user base and transaction volume. In 2020, it reports 346m active accounts across the globe and processed $222b in payments in Q2 alone.
How the move affects investors
Naturally, those directly holding Bitcoins and other cryptocurrency in their portfolio may see this Paypal announcement as a vote of confidence in the future of virtual currencies. Yet one crucial question remains: will this ultimately pull crypto out of their niche in payments? In the short term it seems unlikely, according to many fintech pundits. Many Bitcoin holders, for instance, regard their investment in a similar way to those holding gold – rather than as a daily payment method. However, Paypal’s announcement is likely to attract more global users to its platform and make it more ready for the day when “digital coins” – currently being developed by many central banks – may become more mainstream.
Across the world in 2020, many large established banks have been accelerating their research on how to issue their own “digitalised versions” of the fiat currency. The European Central Bank (ECB) and the People’s Bank of China (i.e. the digital yuan project) appear to be furthest ahead in this respect, at the time of writing. In the longer term, therefore, Paypal’s inclusion of Bitcoin in its network will likely help position its business more at the fore when facilitating transactions in these online currencies.
One direct benefit for Bitcoin and cryptocurrencies, however, is that demand is likely to rise due to Paypal’s acceptance. After all, many people around the world wish to buy a digital asset such as Bitcoin, but have refrained because they perceive it to be “too difficult” (e.g. registering at an exchange, creating a wallet, submitting banking information etc.). With a Paypal account, on the other hand, all you need to do is create an account, make a few clicks and Bitcoin can appear in your wallet (next to your pounds/dollars/euros). This increased user ease of Bitcoin storage and transaction is also likely to encourage more merchants to accept it as payment.
Perhaps the biggest gift to Bitcoin, however, is the legitimacy it gains from Paypal’s move. With its acceptance as a form of payment, the cryptocurrency ecosystem loses reputation as merely a currency for online drug dealers and tax cheats. With a business as well-known and trusted as Paypal facilitating it, Bitcoin gains that much-needed extra prestige in the eyes of merchants, institutional investors and even national governments.
Conclusion & invitation
This last point is key – with more support for Bitcoin amongst consumers, businesses and online platforms it becomes harder for governments to ban it. Paypal, together with others like Square and Fidelity, control trillions of dollars and have an interest in seeing Bitcoin thrive. Investors in cryptocurrencies will likely take great encouragement from this.
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