PayPal (PYPL) has entered the cryptocurrency markets in a big way. Both PayPal and Venmo will accept and process cryptocurrency for all online payments soon, press releases claim.
Any U.S. PayPal account holder will be able hold Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH) in his or her digital wallet later this year, The Verge claims. PayPal (NASDAQ: PYPL) will accept cryptocurrency payments on Venmo in 2021, Reuters claims.
PayPal and Venmo users could pay merchants in cryptocurrency, The Verge claims. PayPal will convert cryptocurrency payments to merchants into fiat currency. Reuters claims PayPal will settle cryptocurrency transactions in fiat currencies.
PayPal has some restrictions on cryptocurrency. Users will not transfer exostomg cryptocurrency to PayPal, The Verge claims. Instead, users will buy the cryptocurrency they spend on PayPal’s platform.
Will PayPal Buy Bitgo?
PayPal Holdings (NASDAQ: PYPL) is in negotiation to buy several cryptocurrency firms including BitGo Inc., CoinDesk and Bloomberg claim. BitGo was the first U.S. cryptocurrency firm to obtain broker-dealer approval, transfer agent registration, and a trust company recognition.
Major investors; including Goldman Sachs (GS) back BitGo, Bloomberg reports. BitoGo has applied for permission to become an independent, regulated, and qualified custodian in New York State, Bloomberg notes. In New York State, custodians can store digital assets for investors.
Neither Bloomberg nor CoinDesk named the other companies PayPal is supposedly interested in. Both PayPal and BitGo refuse to comment on Bloomberg’s claims.
Why PayPal is Accepting Cryptocurrency
PayPal (PYPL) will accept cryptocurrency because rival Square (SQ) claims to have generated $875 million in Bitcoin revenues in 2nd Quarter 2020. Moreover, Square (NYSE: SQ) claims its Bitcoin revenues grew by 600% in Second Quarter 2020.
Interestingly, Square (SQ) purchased 4,709 Bitcoins for $50 million in Third Quarter 2020, The Verge reports. The Verge estimates the Bitcoin investment makes up 1% of Square’s total assets.
Square’s executives think “bitcoin has the potential to be a more ubiquitous currency in the future,” The Verge notes. Square has labeled Bitcoin (BTC) “an instrument of economic empowerment.”
I think Square executives including CEO Jack Dorsey believe Bitcoin (BTC) or Ethereum (ETH) could become a dollar alternative. Many people think the US dollar could lose value because of America’s inability to cope with coronavirus. The dollar is the world’s reserve currency because there is no alternative.
Dorsey thinks Bitcoin (BTC) could become the dollar alternative or an unofficial reserve currency. Mr. Market is rewarding Dorsey’s faith with more Cash App investors.
Mr. Market loves Bitcoin (BTC) and PayPal’s decision to accept cryptocurrency.
Bitcoin’s Coin Price grew from $11,676.71 on 19 October 2020 to $13,043.36 on 26 October 2020. PayPal announced its cryptocurrency plans on 21 October 2020.
In contrast, Ethereum’s (ETH) Coin Price grew from $368.69 on 20 October 2020 to $393.90 on 26 October 2020. Comparatively, Bitcoin Cash’s (BCH) Coin Price grew from $251.11 on 11 October 2020 to $259.73 on 26 October 2020. Moreover, Litecoin’s (LTC) Coin price grew from $49.34 on 20 October 2020 to $56.71 on 26 October 2020.
Thus, speculators think PayPal’s action could boost cryptocurrency prices by increasing cryptocurrency use. However, I think PayPal’s acceptance of Ethereum (ETH) is a bigger story.
PayPal could make more money from Ethereum than Bitcoin
To explain, Ethereum (ETH) is theoretically compatible with any ERC-20 (Ethereum Request for Comment) cryptocurrency. Thus you can convert any ERC-20 token into Ethereum.
Most of the world’s blockchain tokens and cryptocurrencies are ERC-20. That means PayPal could accept ERC-20 tokens work with most Ethereum platforms. ERC-20 is huge because Investopedia estimates there were over 200,000 ERC-20 tokens in October 2020.
On the other hand, I think Bitcoin (BTC), Litecoin (LTC), and Bitcoin Cash (BCH) are too slow, clunky and cumbersome to become widely used cryptocurrencies. For instance, Bitcoin was processing 3.683 transactions per second (TPS) on 24 October 2020, Blockhain.com estimates. That means a Bitcoin wallet could crash if it tries to process four transactions at once. In comparison, Ethereum was processing 10.3578 transactions a second on 24 October 2020, Blockchair estimates.
Has PayPal Solved the Blockchain Scalability Problem?
This is the great Blockchain Scalability Problem you may have heard about. To elaborate, all the security features and cryptography in cryptocurrencies slows them down.
Hence, a platform cannot process hundreds or thousands of cryptocurrency at once. It also means cryptocurrency wallets cannot compete with payments solutions such as Visa (NYSE: V). Visa claims its platform can process 1,700 TPS.
Thus, PayPal could have a solution to the blockchain scalability problem. Or PayPal’s engineers could think they can avoid the blockchain scalability problem by not accepting outside cryptocurrencies.
Oddly, PayPal is not accepting faster and more scalable cryptocurrencies such as EOS (EOS) and Ripple (XRP). For instance, the EOS Network Monitor estimates EOS was processing between 64 and 87 TPS on 27 September 2020. The EOS Network Monitor claims EOS has processed up to 3,862 TPS. Hence, EOS’s capacity could exceed Visa’s.
I think PayPal and Square need to accept EOS because I think the EOS is the only scalable cryptocurrency available now.
PayPal needs Stablecoins
Another problem I see at PayPal is the lack of stablecoins. A stabelcoin is a cryptocurrency that can make instant payment in a fiat currency such as the US dollar.
To explain, stablecoins such as Tether (USDT) coin digital robots or smart contracts. When you spend a Tether, the digital robot releases a US dollar payment to the recipient from a trust account.
PayPal needs stablecoins because they are a popular way for ordinary people to invest in US dollars or Euros. Tether, for instance, was the third most popular stablecoin on 26 October 2020, Coinmarketcap estimates.
Why PayPal Needs Tether
Notably, Tether had a larger Market Volume than the first and second most cryptocurrencies; Bitcoin and Ethereum, on 26 October 2020.
Coinmarketcap estimates Tether had a 24-Hour-Market Volume of $52.927 million on 26 October 2020. In contrast, Ethereum had a 24-Hour-Market Volume of $14.677 million, and Bitcoin had a 24-Hour-Market-Volume of $28.766 million on the same day.
The 24-Hour Market-Volume is the amount of a cryptocurrency people trade in a day. Thus, Tether has more use than either Bitcoin (BTC) or Ethereum (ETH). I think PayPal could make more money by offering Tether on its platform.
Can PayPal Make Money with Cryptocurrency?
I think PayPal could make money with cryptocurrency because it already makes money from its digital wallets and Venmo.
For example, PayPal’s quarterly operating income grew from $398 million on 31 March 2020 to $951 million on 30 June 2020. In addition, PayPal’s quarterly gross profit grew from $1.889 billion to $2.555 billion in the same period. Plus, PayPal,’s quarterly revenues grew from $4.618 million on 31 March 2020 to $5.261 on 30 June 2020.
Finally, Stockrow gave PayPal a 22.21% revenue growth rate for the quarter ending on 30 June 2020. That revenue growth rate grew from 11.87% in the previous quarter.
PayPal has shown it is capable of massive revenue growth from digital wallets that operate on fiat currencies. I think PayPal could achieve similar growth from cryptocurrencies.
I think Mr. Market overpriced PayPal at $197.22 on 26 October 2020. However, I think PayPal is a moneymaker that is capable of enormous growth. I advise growth investors to investigate PayPal (NASDAQ: PYPL) because its platform could soon experience explosive growth because of cryptocurrencies.
Originally published at https://marketmadhouse.com on October 26, 2020.