PayPal Accepts Bitcoin: What This Means for Crypto Adoption
In the midst of the crypto-winter and following the DeFi bubble burst and the introduction of new lockdowns across Europe, an unexpected news announcement spread enthusiasm in the crypto community on Wednesday. Leading online payment provider, PayPal, has announced that it will enable the buying and selling of Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH) through the PayPal wallet and accept these cryptocurrencies as a funding source for payments to all 26 million PayPal merchants.
Bitcoin and Ethereum prices surged 10% within hours of the announcement. Crypto fans were ecstatic and called the announcement “the biggest news in crypto this year.” However, as the crypto community can be prone to overenthusiasm and hyper excitement, these statements must be taken with a grain of salt.
What does PayPal’s decision to integrate Bitcoin and Ethereum really mean for the broader context of cryptocurrency adoption? Here are my thoughts.
Facts First: What Exactly Did PayPal Announce (and What Didn’t It)?
Within hours of the announcement, online forums and news outlets were full of vague or misleading information. This is not surprising given that many of the conventional players still don’t understand cryptocurrencies well enough and crypto fans were busy overemphasizing how big of an announcement this really was.
So, here are the four essential facts:
· PayPal will integrate a buying/selling-option of four leading cryptos directly into the PayPal wallet.
“The company is introducing the ability to buy, hold and sell select cryptocurrencies, initially featuring Bitcoin, Ethereum, Bitcoin Cash and Litecoin, directly within the PayPal digital wallet.”
Starting with US customers and expanding into selected countries (which ones was not disclosed), PayPal will allow its customers to buy and sell the Bitcoin, Ethereum, Litecoin, and Bitcoin Cash cryptocurrencies directly from their PayPal wallets. PayPal will not charge a fee for any of these transactions until January 1st, 2021.
Naturally, cryptos can also be held in what would most likely be a custodian crypto-wallet. When used in the statement, the word “initially” can of course be seen to imply that further cryptocurrencies will be added in the future.
· From early 2021, PayPal will allow cryptocurrencies to be used as a funding source for payments to PayPal merchants.
“Beginning in early 2021, PayPal customers will be able to use their cryptocurrency holdings as a funding source to pay at PayPal’s 26 million merchants around the globe.”
“From early 2021,” PayPal customers will be able to use the cryptocurrency amounts they have stored in their PayPal wallets to make payments to PayPal merchants. The conversion will take place at the respective crypto-to-fiat-exchange-rate at the time of payment. This will be done at “no incremental fee.”
· PayPal merchants will receive the respective amount in fiat currency, as usual.
“Consumers will be able to instantly convert their selected cryptocurrency balance to fiat currency, with certainty of value and no incremental fees.”
Given that there are 26 million PayPal merchants worldwide, it is interesting to point out that NOTHING will change for them. In case their customers choose to pay via one of the four cryptocurrencies, the PayPal merchant will still receive the respective fiat amount, just as it always has been.
For all we know, the PayPal merchant won’t even know in which currency his client originally paid. There will be no additional fees charged to the PayPal merchant for accepting and receiving cryptocurrency.
· PayPal will not charge any fees for conversion of cryptocurrency into fiat money until Jan. 1, 2021.
“There are no service fees when buying or selling cryptocurrency through December 31, 2020, and there are no fees for holding cryptocurrency in a PayPal account.”
PayPal will not charge any fees if customers convert cryptocurrency into fiat money from their crypto-holdings inside PayPal in order to conduct a payment or when selling the crypto.
This may be one of the most overlooked and astonishing points of all. Given how high PayPal fees can be for payments, this part of the announcement surprised many readers the most. Implementing cryptocurrency cannot be an easy or cheap step for PayPal, yet they don’t want to charge for it.
YET, THE CAVEAT IS that this is only valid until December 31st. Nonetheless, it is a welcome offer.
The fact that holding cryptocurrency amounts in your wallet at PayPal is free is to be expected. There is not a single crypto wallet provider that charges for a storage function.
Close Cooperation with Governments and Regulators Underlined
An interesting yet understandable point about PayPal’s press release is how eager and insistent they are on underlining that they have already been, are, and will be working closely with governments and regulators to ensure legal compliance and transparent efforts to realize the full potential that the usage of digital currencies can provide.
Given the negative reputation cryptocurrencies like Bitcoin still tend to have among more conservative actors and pundits in the banking and financial system, it is essential for PayPal to strike a balance and ease people’s concerns about PayPal engaging in a still largely mischievous and unregulated area.
After all, activities linked with Bitcoin and cryptocurrencies are money laundering, cybercrime, and the purchase of illegal goods on the Darknet. (By the way, money laundering is much more common using fiat, as SWIFT says).
In the press release, PayPal seems to work hard to speak to enthusiastic cryptocurrency fans that would use PayPal as well as company clients, investors/stockholders, and other stakeholders that need to be reassured that PayPal will continue to be a reputable, acclaimed company engaging only in legally compliant and honourable practices.
8 Ideas About What This Means for Cryptocurrency Adoption
The real question most people are asking is, of course, “What does this decision on the side of PayPal mean for cryptocurrency adoption and the broader crypto-scene overall?” Naturally, it is too early to predict this with certainty and various analysts will have differing views.
Here are my thoughts on the repercussions PayPal’s decision will have:
Idea 1: Existing Crypto-Brokers Now Face a Massive Competitor
Until now, you had to use a crypto broker to enter the cryptosphere. These specialized online brokers allowed you to create a user account, deposit fiat currency, and/or directly exchange a credit card payment/PayPal payment into a cryptocurrency of your choice.
For many new users, such a crypto broker may now no longer be necessary. Why register for a separate broker and go through a KYC/AML procedure when you can do it all directly through PayPal! This value proposition is hard to beat. Effectively, PayPal is now an online payment provider with a built-in crypto broker function.
Sure, most crypto brokers offer access to a wider choice of cryptocurrencies. But BTC, ETH, LTC, and BCH together make up about 75% of the total crypto market cap at the moment. Crypto exchanges like Binance are less at risk as these sites are mainly used by crypto day traders and those seeking to buy/trade more exotic altcoins.
Idea 2: Millions of New People Will Join the Crypto-World
PayPal will most likely achieve what it intends: millions of new users will discover and enter the world of cryptocurrencies. As the payment processor has a global customer base of 184 million users, it is not unlikely that at least five to 10 million of its clients will eventually dabble in the crypto world even if to only make their first and only small purchase of “this thing called Bitcoin.”
Why is this likely? Well, referring to the previous point, there is simply no easier — and cheaper — way to buy Bitcoin than with this new PayPal option and convenience reigns supreme.
Idea 3: This Is a Big Vote of Confidence in the Future of Digital Assets
That digital assets are the future is now beyond doubt. As PayPal makes sure to mention in its press release, many European central bankers have come forth and expressed their support for the creation and introduction of a digital Euro.
The European Central Bank (ECB), under its President Christine Lagarde, reportedly already registered a trademark for the term “digital Euro” back on September 22, 2020. The ECB sees the future digital Euro as competition to existing cryptocurrencies.
Idea 4: Integration by a Top 50 Tech Firm Gives Cryptos Massive Legitimacy and Credibility
While the idea of digital assets is already mainstream, the crypto scene is still partly at war with the traditional banking and financial system. This is no surprise as Bitcoin was initially invented to make the existing system obsolete.
Yet, while officially still despising the world of regulated banks and finance, the crypto-scene is actually desperately craving for the acceptance and recognition it is receiving through PayPal’s decision.
In a way, this is PayPal telling all other big tech firms “This thing is here to stay and we are embracing it.”
Will other companies follow? It’s impossible to say, but PayPal is the biggest online payment provider after all.
Idea 5: The Utility of BTC, ETH, LTC, and BCH Has Gone up Immensely
Not only will it be super-easy to buy BTC, ETH, LTC, and BCH simply by using your existing PayPal account, it is also much easier to make use of these currencies. In a few weeks, US-based PayPal clients will be able to use any of these four coins to pay their bills with PayPal merchants.
As the utility of the currencies went up, so did the price. Both BTC and ETH were up by 10% within 24 hours of the announcement. However, prices have partly receded since.
The process of exchanging crypto for fiat and then using the fiat to pay was quite complicated until now. Typically, you either had to sell crypto for fiat at an exchange, wait one to two business days to withdraw that money to your bank account and only from there would you be able to pay for goods or services. Alternative solutions, like crypto-based credit cards charged massive fees, making such transactions uneconomical and simply a bad idea.
The caveat is that we do not know how high the fees PayPal intends to charge from January 1, 2021 will be.
Idea 6: Cryptocurrency Really has a Shot at Becoming a Means of Payment
Until now, you could argue that the term cryptocurrency was a misnomer, given that the function of a currency was thought of as mainly a means of payment. Given the lack of merchants — both online and offline — accepting Bitcoin and others as means of payment, this function barely existed.
This has changed. With PayPal’s decision, all PayPal users can soon pay at 26 million merchants worldwide. Whether it is for clothing, online services, your next pizza, or any necessary or unnecessary gadget or designer item on eBay, simply use crypto to buy it!
This also means that the value proposition of buying and owning cryptocurrencies has increased dramatically. Both investment and payment are easily possible and plausible now.
Idea 7: Speculation with Cryptocurrencies will Become More Widespread
Arguably, most owners of crypto have self-proclaimed themselves crypto investors (or maybe rather crypto speculators, given the lack of predictability of price development), meaning they held cryptocurrency with the hope or belief of its future price increase. In other words, cryptocurrencies were an asset rather than a means of payment.
Well, with such a liquid and highly-utilizable means of payment that potentially increases in value, there is — so it seems — much more reason to buy and hold these currencies.
Not only could you make investment gains, but you can easily realize them by conveniently buying something you want or need.
The cryptosphere is now almost a FOREX ON STEROIDS, as you can expect exchange rate changes between crypto and fiat of one to five per cent on average per day.
Idea 8: The Two Primary Reasons for Crypto-Buying Are Merging
With PayPal, crypto-investors can now easily and conveniently engage in both of these tasks — buying and selling cryptocurrency for fiat for “investment purposes” and using it to pay for goods and services — all from one user-friendly and familiar interface.
This could very well turn out to be the best decision PayPal has ever made. It could also be a big mistake. Nothing is certain in the world of cryptocurrency.
Maybe, just maybe, PayPal has just set up its camp on the fertile fields between Euphrates and Tigris where these two useful streams of crypto usage confluence.
We can be sure that NASDAQ-listed PayPal performed an extensive cost-benefit-analysis and risk management assessment before moving forward with this decision. And with central banks discussing the issuance and utilization of digital currencies, PayPal has massive confidence that this idea may really be future-proof.
PayPal’s decision to offer its customers the option to buy/sell and utilize BTC, ETH, LTC, and BCH to fund payments towards PayPal merchants really deserves to be called “the biggest news in crypto in 2020.” Well, maybe aside from the big hype around decentralized finance (DeFi).
Its decision will cause millions of people to discover the world of cryptocurrencies, threaten existing crypto brokers, and further help in making cryptocurrencies mainstream, publicly accepted, and widely adopted.
We cannot foresee where PayPal intends to go with this and how many other companies will follow. Yet, one thing is clear: this is REALLY GOOD NEWS for the cryptosphere.
It might just be enough to kick us directly into a crypto spring. The currently-soaring crypto prices suggest that crypto holders would agree with this notion.