October 22, 2020 Jim Stewart
Paypal gave the crypto market a huge boost today by announcing that it was going to allow customers to buy, sell and hold Bitcoin and other virtual coins (Ethereum, Bitcoin cash and Litecoin) in their online wallets. They are partnering with the Paxos Trust Company to offer the service.
Starting in 2021, Paypal customers will be able to use these cryptocurrencies to shop at 26 million merchants on the company’s network. It also plans to expand the service to its Venmo subsidiary and other countries in the latter half of 2021. The company has 346 million active accounts around the world and processed $222 billion in payment during the 2nd quarter of 2020.
Paypal will convert the cryptocurrencies to the merchant’s local currency when goods and services are bought and sold. This set up makes the account holder bear the risk of a fluctuating coin price (and reward!) Historically, cryptocurrency prices tended to be quite volatile. This makes them less appealing to merchants and frustrating for shoppers due to the cost and timing of liquidations. Having a larger market and seasoned companies creating the marketplace will help with these pitfalls.
Mobile payment company Square and stock trading app Robinhood have allowed users to buy, sell and hold cryptocurrencies for some time. The Paypal announcement is notable for two reasons:
- Paypal was involved in Facebook’s cryptocurrency project called Libra in 2019 but pulled out after a few months.
- Paypal has a vast and established network of users which gives additional credibility to cryptocurrencies as an asset class.
It’s not surprising to see Bitcoin and Paypal at new 52 week highs following this announcement.