PayPal’s decision to enter the cryptocurrency market sent the value of Bitcoin soaring, but the announcement has garnered a less than exuberant response from the fintech community.
In the coming weeks, PayPal account holders in the US will be able to buy, hold, and sell cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, within the PayPal digital wallet.
PayPal will also expand the features to its P2P payment platform Venmo and select international markets in the first half of 2021 through a partnership with Paxos Trust Company, a regulated provider of cryptocurrency services.
In addition, the New York State Department of Financial Services (NYSDFS) granted PayPal a first-of-its-kind conditional ‘Bitlicense,’ a business licence that enables the company to conduct virtual currency activities.
To mark the launch, PayPal will not charge any service fees for buying or selling cryptocurrency or for holding cryptocurrency in a PayPal account until 31 December 2020.
PayPal said it wants ‘to increase consumer understanding and adoption of cryptocurrency’ and will also provide account holders with educational content to help them understand the cryptocurrency ecosystem.
“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,” says Dan Schulman, president and CEO at PayPal.
“Our global reach, digital payments expertise, two-sided network, and rigorous security and compliance controls provide us with the opportunity, and the responsibility, to help facilitate the understanding, redemption, and interoperability of these new instruments of exchange.”
Following the announcement, Bitcoin surged in price, ultimately overtaking the market cap of PayPal itself. Billionaire investor Mike Novogratz called it an ‘exciting day,’ the ‘biggest news of the year in crypto’ and hailed the ‘Rubicon crossed’ on Twitter.
Writing in Forbes, David G.W Birch – the respected author, advisor and commentator on digital financial services – suggests that by gaining expertise in decentralised alternatives to commercial bank money, PayPal is being ‘very smart.’
“PayPal must have started to think about the opportunities that will arise from the trading and management of digital assets (in the form of tokens) in the not-too-distant future,” writes Birch.
What’s the big story?
However, others are concerned that while PayPal says it is ‘eager to work with central banks and regulators around the world,’ for now, it is restricting users to purchasing cryptocurrencies on its platform. Plus, existing digital coin owners can’t transfer the contents of other digital wallets over to PayPal’s.
Satoshi Labs, inventor of crypto hardware wallet Trezor, is less than impressed. It thinks PayPal is sending out mixed messages.
In a team blog, it suggests that while PayPal’s announcement may bring a promise of greater regulation, consumers should not use PayPal for Bitcoin transactions.
“Long-term, if PayPal proceeds without consulting the community and letting their users control their own keys, it offers no value to the space. The greatest risk is that the clout they carry in traditional electronic payments will be interpreted as expertise in crypto. This would threaten the expert advice so carefully crafted by our community, which could be drowned out by the misinformed masses that PayPal brings to the space.”
David Gerard, author of Attack of the 50 Foot Blockchain and Libra Shrugged: How Facebook Tried to Take Over the Money, says he is ‘baffled that PayPal would offer this’ and asks: “Are they trying to get into the bored day-trader market that apps like Robinhood live off, except cryptos rather than stocks?”
Meanwhile, Peter Smith, CEO at Blockchain.com, adds: “PayPal’s decision is highly centralised and inflexible. We saw this with Robinhood, and we’re seeing it again today. Crypto is about financial freedom. It’s modern money that anyone anywhere can truly control. While we’re excited to see a new audience gain access, a non-custodial approach limits opportunity to self-custody your crypto or transact freely.”
PayPal is inviting people to join the waitlist for its cryptocurrency services at www.paypal.com/us/webapps/mpp/cryptowaitlist.
It’s clear this is a significant step forward for Bitcoin and cryptocurrencies but it remains to be seen how PayPal’s arrival on the scene will impact this category in the long term.