Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
There has been one headline dominating the cryptocurrency market in the past few days: Paypal’s support for cryptocurrencies. The news had an immediate impact on Bitcoin’s price, briefly sending it past $13,000. Now, analysts are more bullish than ever for the asset. But this news is clearly bullish for more than just digital assets.
PayPal Stock Reaches All-Time High
The news has had a positive effect on PayPal too, which surged 5.5% on October 22. And this pushed its price to an all-time high of $215.87. PayPal was already rising in value this year, and now it looks better than ever for the stock.
Perhaps it was reasonable to expect the stock to go up given its outlook before the news. But not many would have predicted the degree to which it has been well-received.
The news itself was a long time coming though — rumors swirled in June about a potential partnership with Paxos for the same purpose. And incidentally, Paxos is indeed the partner PayPal has chosen to facilitate the crypto storage and exchange.
The cryptocurrency market certainly has a tendency to react strongly to news — good or bad. The equity market, on the other hand, is usually more measured. Though the price has dropped a bit from its all-time high at the time of publication, the positive outlook largely remains.
Activity on the Bitcoin network has also increased this year, with investors turning to it for hedging purposes. This has the potential to bring a large market of users into PayPal. More importantly, it has the potential to drive payments towards PayPal’s 24+ million merchants.
In the context of PayPal’s own stock price, driving of investors to the platform is important. The company is already one of the largest online payment platforms in the world, with 346 million users. It would not be wrong to assume that many of these have little to no experience of cryptocurrencies.
How Will This Affect PayPal Going in 2021?
With the option to buy, trade, and store cryptocurrencies, PayPal exposes this large swathe of users to the asset class. In turn, cryptocurrencies users are also roped in — even if it has limitations that might push them to trade elsewhere. But they do have the option of paying merchants on it with crypto.
This change could easily make PayPal one of the biggest crypto-supporting platforms for the next few years, at least. The costs and limitations associated with PayPal prevent it from growing beyond a certain point. However, the company is in a good position to have moderate involvement in crypto, especially with its merchant userbase.
For the next few weeks, PayPal’s crypto features will be limited to trading and storage. And from next year, merchants’ payments will be supported, and that’s what people should look out for. If it can truly spur payments to its many millions of merchants, we could have a renaissance period for the market.
And PayPal would be one of the company’s leading that charge, though there is competition in the form of Stripe. It has the advantage of its strong market share, and a pivot to digital currencies could truly increase its userbase. This depends to a degree on the improvements within cryptocurrencies themselves.
Merchants have often shied away from cryptocurrencies because of the volatility of the asset class — and even that is decreasing. Furthermore, it wouldn’t be too difficult for merchants to take their payments partly in crypto and partly in cash. In other words, the option is there for those willing to invest some cash into it.
This is obviously a win for both Bitcoin and PayPal. The latter had already been on the uptick, and this new feature will only spur it forward further. On the whole, this is undoubtedly a good move on PayPal’s part. At any rate, 2021 is shaping up to be a fascinating year for cryptocurrencies.
What do you think of PayPal’s decision? Will its stock price go up in 2021? Let us know in the comments below.
Disclosure:Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.