This week, the big news came in the form of PayPal announcing support for cryptocurrencies.
Not only the payments company would allow its users to buy, sell, and hold crypto, but soon it will also allow the users to shop at its 26 million merchants using crypto.
“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,” said Dan Schulman, president, and CEO of PayPal.
Today, we are announcing the launch of a new service that will enable customers to buy, hold and sell #Cryptocurrency directly from their PayPal account. https://t.co/QS6JRmG9hs pic.twitter.com/uHBatfZkbF
— PayPal (@PayPal) October 21, 2020
As reflected in the price of Bitcoin surging past $13,000 to a new 2020 high, the market was elated. The other three digital assets had a good time with gains.
First Thing First
Why was this particular set of cryptos selected?
These crypto are actually among the digital assets approved by the New York State Department of Financial Services, and the NYDFS has granted PayPal a first-of-its-kind conditional Bitlicense.
Other coins approved by NYDFS for listing include Binance USD (BUSD), Gemini Dollar (GUSD), Paxos Standard (PAX), and Pax Gold (PAXG). Ethereum Classic (ETC) and Ripple (XRP) joined these cryptos in approval for the custody list.
Now, some feel by adding altcoins, it has just become another ‘exchange listing pump’ phenomenon.
“New bullish catalyst will be which altcoin Paypal lists news. They will be the Coinbase listing of 2020 and 2021,” noted one trader.
Which should be the next coin listed on Paypal?
— The Cryptomist (@TheCryptomist) October 21, 2020
As a matter of fact, the company could really be setting the stage for its own dollar-pegged digital currency to “reduce their dependence on the correspondent banking system and other card networks,” as Facebook is doing with Libra, said Meltem Demirors, the chief strategy officer at CoinShares.
PayPal news was met with excitement; the market celebrated it with gusto, seeing it as a sign that other institutions now would have no choice but to follow suit.
“We knew crypto trading on PayPal was coming, but to also enable crypto use for shopping at its 26 M merchant network is huge. Also, with PayPal and Venmo in the fray, every Fintech firm will now follow,” said a partner at the crypto fund, The Spartan Group.
“If you liked the recent PayPal and Revolut launches, you’ll love the dozens of neo-banks and fintech teams currently scrambling to figure out what their “crypto strategy” is,” said Arjun Balaji.
In terms of exposure, “PayPal is bullish AF,” as the company has 487 million userbases while the bitcoin network currently has only 187 million total on-chain participants (23.4 million on-chain holders plus 101 million exchange users).
But is it Really?
While the digital asset price remains in bullish momentum, it didn’t take much time for the excitement to die down in the market.
LOL market went from “WE NEED MAX DEFI” to “YES MAX CEFI GO PAYPAL” in like 5 seconds
— loomdart (@loomdart) October 21, 2020
Some even called this rally, “insiders frontrunning the PayPal news,” while others think it just “the most bullshit cope.”
The real caveat is that merchants won’t be receiving payments in virtual coins. But the biggest issue has been taken with the fact that PayPal doesn’t allow the cryptocurrencies in its account to be transferred to other accounts, on or off PayPal.
“So, this is all a big PayPal nothing burger, just entries in a central PayPal database, nothing to do with bitcoin,” said analyst PlanB.
Popular hardware wallet Trezor also said: “You shouldn’t use PayPal” because ‘not your keys, not your coin’ as Paypal doesn’t provide the private key of the crypto holdings.
Not only its ex-CEO Bill Harris called Bitcoin “the greatest scam ever,” but PayPal is also known for “stifling competition and preventing users from ever withdrawing their cryptocurrency to the safety of a wallet they control the keys to,” wrote Trezor in a blog post.
I think we’d agree that restricting self-custody is objectively bad & the option to hold one’s own keys is objectively necessary for Bitcoin to succeed.
We shouldn’t take for granted that fiat on-ramps will always allow withdrawals. We should demand it.https://t.co/d2ThcBuWKC
— Jake Chervinsky (@jchervinsky) October 21, 2020
Amidst this hard criticism against PayPal for restricting self-custody being “objectively bad” and “necessary for Bitcoin to succeed,” others argue that this was exactly how Square’s Cash app started out, and eventually, it opened up.
“This is a great way for a risk-averse firm to offer its customers exposure to Bitcoin without worrying about “travel rule” compliance,” said Jerry Brito, executive director at crypto think tank Coin Center.
“In all fairness to PayPal, those features may come later,” tweeted Weiss Crypto Ratings.