Disclaimer: Opinions expressed in this article do not constitute investment advice from Bitcoin Reserve.
This week PayPal, the world's most expansive payments processors, finally pulled the trigger on its long-anticipated bitcoin adoption plans. In the coming weeks, PayPal will enable users to buy, sell, and hold bitcoin. And by next year, BTC commerce will be rolled out via PayPal's 26 million-strong merchant network and its payment subsidiary Venmo.
But not everything is exactly as it seems. Here are the ins and outs of PayPal's bitcoin venture.
PayPal's Bitcoin Play
Rumors surrounding PayPal's foray into crypto had been circling for months. As earlier as June, Coindesk reported the potential direct sale of Bitcoin to its 325 million users. The official decision came on October 21, following a nod of approval from the New York State Department of Financial Services (NYDFS). The NY watchdog granted PayPal a provisional BitLicence in an apparent bid to foster innovation in the NY state.
According to PayPal president and chief executive Dan Schulman, while the firm aims to leverage bitcoin payments, the move also serves to ready the Paypal network for central bank digital currency.
Schulman's statement reads:
"The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access; efficiency, speed and resilience of the payments system; and the ability for governments to disburse funds to citizens quickly [...] We are eager to work with central banks and regulators around the world to offer our support, and to meaningfully contribute to shaping the role that digital currencies will play in the future of global finance and commerce."
Reacting to the news, BTC promptly rallied to $13,000, attaining a high not witnessed since 2017.
Bitcoin's Walled Garden
Unfortunately, what at first resembled a veritable catalyst for the bitcoin market, was swiftly snuffed out. Further details revealed that while users can buy, sell, and hold bitcoin, they could only do so within PayPal's internal network—with Paypal controlling the private keys. Even more problematic was the revelation that transfers—either between users or owner-operated accounts—would be barred, not to mention that merchants can only receive fiat for goods paid for in bitcoin, not the bitcoin itself.
With this revelation in hand, the bitcoin community's sentiment quickly turned sour, with users reiterating the mantra: 'not your keys, not your bitcoin.'
In effect, Paypal's move represents little more than a contract for difference (CFD) on bitcoin—not unlike the kind broker platform eToro and Payments processor Square rolled out when they first segued into the crypto sector. In fact, a few, including cypherpunk Adam Back, argue that similarly to eToro and Square, PayPal could conceivably u-turn on the decision and allow withdrawal later on.
What's clear is that this is not a regulatory restriction. After all, PayPal has secured BitLicense, albeit provisionally, which permits it to act and operate like a fully compliant crypto exchange. Additionally, it's partnered with crypto brokerage Paxos for crypto acquisition and settlement—so no issues there.
Rather, it seems this is a case of walking before you can run—for both PayPal and its potential crypto clientele. There's an argument to be had that says PayPal is simply catering to the masses and limiting services to help spread adoption cautiously.
However, stabling bitcoin inside a closed network could do more hard than good. Akin to the CFD analogy, barring users from actual ownership relegates bitcoin to little more than a speculative asset for PayPal customers to make bets on, disregarding the multifaceted reality of bitcoin's nature.
PayPal Adoption Lays the Path to a Global Reserve Currency
Still, while it's easy to get caught up in the debate between tangible control and adoption, the numbers don't lie.
Paypal and Venmo boast a combined active userbase of over 380 million. That's a lot of eyes on bitcoin.
More interesting, perhaps, is this the demographic of this userbase. Data shows that 87% of US millennials ( aged between 22 and 38 years old) employ PayPal for online payment. This bodes extremely well for PayPal's bitcoin play and bitcoin adoption, as millennials are said to be five times as likely to invest in bitcoin compared to older generations.
Moreover, according to research from consumer financial services firm Bankrate, 9% of millennials say bitcoin is the best place to put spare capital long-term—a three-fold increase on Gen-Xers.
That said, the tide seems to be gradually turning overall. As noted in a previous research piece, a recent survey of 5,000 multi-generational respondents across 17 countries revealed that 45% preferred bitcoin over investments in stocks, real estate, and gold—an advance of around 13% on the same survey from 2017.
Demographics aside, it's the sentiment surrounding PayPal's move that truly speaks for bitcoin's potential. Soon after the announcement, PayPal's stock rose more than 5%, showing just how much the public and corporate opinion about bitcoin has changed over the years.
The same was said for business intelligence firm MicroStrategy, with its stock rising by 20% following its new bitcoin reserve strategy, which witnessed an aggregate $425 million investment in the pioneering crypto.
This corporate wave of bitcoin adoption appears to be advancing. After MicroStrategy's unorthodox investment strategy, payment firm Square announced its own this week, placing a $50 million bet on bitcoin. Almost immediately after, bitcoin claimed its first publicly traded firm in the UK, with fintech firm Mode allocating 10% of its cash reserves to bitcoin and bouncing 9% on the news.
With the ranks of publicly-traded bitcoin holders growing and PayPal's foray into crypto, it's only a matter of time before the major banks acquiesce to bitcoin payments. And from there, bitcoin's position as a global reserve currency is almost guaranteed.