PayPal’s Recent Move Could Set Stage For Continued Upward Bitcoin Price Momentum

In a very constructive move for Bitcoin and other cryptocurrencies, PayPal has launched a new service which allows its U.S. users both to shop with and speculate on cryptocurrencies, as they will be permitted to buy, sell or hold them in their virtual wallets. PayPal has 346 million active accounts, and the 26 million worldwide merchants – one of the largest merchant networks in the world – linked to PayPal’s system, in time, will be able to accept Bitcoin as payment for their products.

For merchants, the Bitcoin they receive will be converted into their home currency at transaction settlement, so they will not have to accept long-term Bitcoin fluctuation risks. Currently only U.S. users can currently utilize this service, while other countries are expected to be added soon.

Perhaps most importantly, PayPal’s action, together with a license provided by New York State regulators (see below), further legitimizes Bitcoin as a medium of commerce. The cryptocurrency has jumped above US$13,000 on this development, and further upside seems possible. 

As part of the PayPal news, the New York State Department of Financial Services (NYDFS) granted PayPal a conditional Bitlicense, a newly created authority. The NYDFS hopes to ensure businesses and consumers that they have a safe and regulated means to access the New York virtual currency market through PayPal’s system. 

Other large companies, including Square Inc., a well-known payment processing company, and the rapidly growing Robinhood discount broker and trading app, have previously permitted their users to utilize Bitcoin in their transactions. However, PayPal’s 346-million user base dwarfs Square’s base of 24 million and Robinhood’s base of 13 million. 

To illustrate the effect that PayPal’s adoption may have on Bitcoin, consider the following: in the second quarter of 2020, PayPal processed US$222 billion of transaction volumes from its user base, or about US$2.5 billion per day. If just 1% of this volume were to be shifted to Bitcoin and assuming a Bitcoin price of US$13,000, that would imply about 1,900 Bitcoins would be processed each day by the PayPal system.

By comparison, only about 1,000 new Bitcoins (about 7 Bitcoins are mined every ten minutes, including transaction costs) are created each day by all worldwide miners combined. In our judgment, a PayPal Bitcoin transaction volume of nearly twice the new creation rate could have a notable positive effect on Bitcoin pricing.

Bitcoin Has Dramatically Outperformed Gold and Silver in 2020 

With its recent surge, Bitcoin has dramatically outperformed precious metals as inflation hedges in 2020. Year to date, Bitcoin has appreciated about 80%, while gold and silver have risen approximately 26% and 36%, respectively. 

Bitcoin is testing its medium-term highs set in the summer of 2019. If it pierces the low US$13,000 level, the Bitcoin chart looks to have little resistance until the cryptocurrency tests much higher prices last seen in late 2017 and early 2018.

Information for this briefing was found via Paypal, and TradingView. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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