On October 21, 2020, PayPal announced that they’ll be supporting Bitcoin and other cryptocurrency purchases starting with the following coins,
- Bitcoin Cash
Currently, the program is only being rolled out in the United States, however, PayPal has stated that eventually, users around the world will be able to purchase crypto through the platform.
This announcement could easily be one of the most bullish things to happen to crypto in 2020. To explain why let’s look at five factors that make PayPal’s crypto support so important.In this article:
Five Reasons Why This Matters
The following are five of the key reasons why this announcement is so important.
1 - PayPal’s Userbase is Massive
Currently, PayPal has just under 350 million users worldwide. Recently the Cambridge Center of Alternative Finance estimated that there are only about 100 million unique accounts on cryptocurrency exchanges.
That means that PayPal could double or triple (depending on how many crypto users have a PayPal account) the number of people who have access to Bitcoin and other cryptocurrencies. Even if just 1% of PayPal users buy crypto, that’s still 3.5 million new cryptocurrency holders.
2 - PayPal Makes Buying Bitcoin Easy
There are tens of millions of people who’ve considered buying Bitcoin but have never done it because it’s too difficult. Registering on an exchange, going through KYC, submitting their banking data, creating a wallet and backing up the seed phrase, etc.
To us it all sounds relatively simple, however, we all know that person who thinks that creating a Facebook account is “difficult.” The “Facebook difficult” person will never have a Coinbase account, but they might buy Bitcoin with PayPal.
PayPal will make it dead simple to buy Bitcoin. Just a few clicks, agree to the terms and conditions, and within a minute the Bitcoin will show up in your account, right next to your dollars.
As we consider why it’s impactful for non-technologically sophisticated people to buy Bitcoin, let’s keep a few things in mind.
- The baby boomers are the wealthiest generation in the United States
- Having lived through the 1970s they understand inflation
- Given the opportunity to easily buy Bitcoin with PayPal, it’s likely that a not-insignificant number of baby boomers may choose to do so
This inflow of new money into Bitcoin could be substantial, especially if inflation starts to run hot in the United States.
3 - Massive Merchant Adoption
One of the biggest legitimate complaints about Bitcoin and other cryptocurrencies is that you just can’t spend them anywhere!
Well, there are currently 200 million merchants who accept PayPal worldwide. While a merchant program isn’t being rolled out right now, in the future it would be fairly simple for PayPal to allow sellers to accept Bitcoin. The buyer could pay with Bitcoin, PayPal could convert the BTC into USD and then deposit the dollars into the merchant’s account.
If this were to happen it could drastically increase cryptocurrency adoption. Online buyers could easily spend their coins all over the internet, including eBay.
4 - PayPal Brings Further Legitimacy to Bitcoin
Just like MicroStrategy and Square, PayPal adding Bitcoin support further legitimizes the cryptocurrency ecosystem. It’s hard to argue that Bitcoin is just a currency for online drug dealers and tax cheats when a company as famous as PayPal is supporting it.
PayPal’s embracing of cryptocurrency moves the needle just a bit further toward legitimizing Bitcoin in the eyes of institutional investors and governments alike.
5 - Harder to Ban Bitcoin
This is a point we’ve made before at Exodus: the more institutional support there is for Bitcoin, the harder it becomes for a government to ban it.
- Stone Ridge
Together these companies and investment firms control trillions of dollars. They are powerful entities with a lot of lobbying power and a vested interest in seeing crypto succeed. If politicians proposed a ban on Bitcoin the response from these influential companies would be swift.
Every time a company like PayPal or Fidelity gets involved in Bitcoin, it’s another organization that will fight to keep crypto legal.
Is PayPal Ideal for Holding Bitcoin?
The biggest drawback of PayPal’s crypto program is that you can’t actually withdraw the coins from your PayPal wallet.
This is what’s known as a custodial wallet: a third party, in this case, PayPal, has custody over the cryptocurrency of their users. The result is that users don’t really have control of their crypto. At any time PayPal can freeze a wallet or prevent a transaction from going through.
That’s very different from a non-custodial wallet like Exodus. With the Exodus Bitcoin wallet you control your private keys and you have full control over your crypto. Nobody can stop a transaction, reverse a transaction, or put a lock on your account. It’s your private keys and your crypto!
Custodial Wallets: 100% Bad..?
While we would encourage everyone to custody their own crypto with a wallet like Exodus, we also recognize that it might not always be a good option.
The double-edged sword of crypto is that while you can control your own money, you are 100% responsible for your coins. If you lose access to your wallet, if you send a transaction to the wrong address, if a hacker gains access to your wallet and steals your crypto, everything is gone. There is no insurance against loss and transactions are not reversed.
Some people might find that daunting and not want that responsibility. In that case, the PayPal custodial service may be a better fit since PayPal controls the funds.
While that doesn’t quite live up to the crypto ethos of be your own bank, given the choice between a person owning zero crypto, and a person owning some crypto with PayPal, the PayPal option is definitely better than nothing!
The Next Bull Market
The PayPal announcement may well be the biggest crypto news of the years. PayPal has so many users and such a well-known name that their entrance into crypto really does a lot to move the market forward.
It’s likely that this crypto offering will play a significant role in the next bull market, especially as new users are looking to get involved with Bitcoin for the first time and want to do so with a platform they can trust.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.