The $250 billion payments giant says crypto is going to play a key role in the future of financial services.
Financial services giant Paypal ($250 billion market cap) announced yesterday that it will allow its ~200M U.S. users to buy, sell, and store cryptoassets on its platform, starting over the next few weeks with bitcoin, ethereum, Bitcoin Cash, and Litecoin.
What’s more, the firm said it would enable its 26 million merchants to accept crypto as a payment method, starting in early 2021.
This news is huge for reasons discussed below. It is likely the biggest development of 2020 for crypto. It represents a major leveling-up of the asset class.
The news sent crypto prices sharply higher. Bitcoin rose more than 10% to a multiyear high above $13,000, and other assets followed, including Litecoin, up 15%.
A few reasons we think this is huge news:
1. The number of crypto investors could double overnight.
The first point is simple: PayPal is going to give hundreds of millions of people an introduction to crypto and an easy way to invest.
Today, the largest crypto wallet, Blockchain.com, has 50 million users. Coinbase has 40 million, Square has 30 million, and Robinhood has 12 million. At nearly 200 million U.S. users, PayPal is 4x the size of the largest existing platform.
Of course, not all will invest. Fortunately, we have a way to estimate the impact.
PayPal’s smaller competitor Square allows users to buy and sell bitcoin through its Cash App. Flows have been significant: In Q2 2020, for instance, CashApp users purchased $875 million of bitcoin.
PayPal’s U.S. user base is approximately 6x the size of CashApp. If PayPal is even half as successful as CashApp, PayPal users could be buying billions a quarter. And as we all know, the supply of most cryptoassets is not changing.
2. PayPal could jump-start the use of crypto in commerce.
In addition to demand for investment purposes, PayPal is uniquely suited to finally break down the door to the widespread use of crypto as a payment vehicle.
By early 2021, PayPal’s 26 million merchants will be able to accept payment in bitcoin, ethereum, Litecoin, and Bitcoin Cash. These merchants aren’t just large firms like eBay, but millions of small businesses processing transactions over the internet. In many ways, you could imagine they might be the most likely audience to embrace crypto.
PayPal’s initial retail push will have limitations. But if even just 0.1% of retailers start accepting crypto payments, you have the beginnings of a real commerce use case that has long been sought by the industry.
3. We believe many more large institutions will enter the space over the next six months in response to the pressure and the de-risking that PayPal’s move represents.
The final reason this is a big deal is simply that PayPal is a significant business; more significant than many people think.
PayPal today boasts a market capitalization of $250 billion, significantly larger than Bank of America ($208 billion), Wells Fargo ($93 billion), Morgan Stanley ($91 billion), Citi ($89 billion), and Goldman Sachs ($70 billion), among others.
They’re also a highly regulated money transmitter and financial institution. PayPal’s move shows other such institutions that crypto is now possible on the largest possible scale.
In fact, a recent letter published by the Office of the Comptroller of the Currency clarified that national banks can custody cryptoassets themselves. With PayPal now leading the way, what reasons do banks and other payments companies have for not offering comparable services?
It’s a watershed moment.
Part of a Bigger Story
The PayPal story comes on the heels of a number of significant regulatory, infrastructure, and institutional adoption developments that opened up the market for cryptoassets to an ever-wider audience of users in recent years.
Since 2017, we’ve seen the Chicago Mercantile Exchange launch regulated bitcoin futures; Fidelity Digital Asset Services launch crypto custody; the parent company of the New York Stock Exchange launch a crypto exchange; the likes of Square and Robinhood introduce offerings; the launch of dozens of institutional investment funds and ensuing investment by many of the country’s leading endowments; the creation of a robust regulatory framework, including the New York State BitLicense that PayPal will be operating under; the DOJ and DEA engaged in routing out bad actors; central banks planning to introduce their own digital coins; the recent move of a publicly traded company, MicroStrategy, to invest almost $500 million of its corporate Treasury into crypto rather than dollars; and more.
(If you haven’t already, we would encourage you to read PayPal’s press release announcing the news. It was a truly remarkable, far-reaching, and ringing endorsement of the importance of crypto.)
Crypto is still not mainstream yet. But today’s announcement represents a huge leap forward, and a subtle tilting of the conversation from “why would we do something in crypto” to “why aren’t we doing something in crypto.”
We are excited to see what comes next.
Based in San Francisco, Bitwise is one of the largest and fastest-growing crypto asset managers. As of March 31, 2022, Bitwise managed $1.2 billion across an expanding suite of investment solutions. The firm is known for managing the world’s largest crypto index fund (OTCQX: BITW) and pioneering products spanning Bitcoin, Ethereum, DeFi, and crypto-focused equity indexes. Bitwise focuses on partnering with financial advisors and investment professionals to provide quality education and research. The team at Bitwise combines expertise in technology with decades of experience in traditional asset management and indexing, coming from firms including BlackRock, Blackstone, Meta, and Google, as well as the U.S. Attorney’s Office. Bitwise is backed by leading institutional investors and asset management executives, and has been profiled in Institutional Investor, CNBC, Barron’s, Bloomberg, and The Wall Street Journal. For more information, visit www.bitwiseinvestments.com.