The Breakdown - PayPal Adds Bitcoin: Most Bullish News of the Year?

Episode Date: October 21, 2020

Huge news broke this morning as PayPal announced it would be offering buying, selling and eventually merchant payments for bitcoin and other cryptos across its network.  In this late-breaking Breakdown episode, NLW explores: The specifics of the news Why the scale, precedent and normalization are hugely bullish What some skeptics are saying Why it’s significant PayPal is focused on the coming central bank digital currency era 

All of these companies are setting themselves up to be the partner for central banks because they believe that the shift to digital currencies is inevitable. That's a huge part of this story and really, really important to watch. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Crypto.com, nexo.io, and elliptic. and produced and distributed by CoinDesk. What's going on, guys?

It is Wednesday, October 21st, and oh man, do we have a crazy one today. PayPal has added support for Bitcoin and other cryptos, and I'm here to ask, is this the most bullish news of the year? So first up, let's get into the actual announcement. PayPal's press release was titled, PayPal launches new service enabling users to buy, hold, and sell cryptocurrency. The Reuters headline was PayPal to allow cryptocurrency buying, selling, and shopping on its network. So there's a lot to unpack here.

First of all, right now we're going to have the buying and selling. People will be able to get crypto and hold it or sell it back. The shopping part, which has caught lots of people's attention, is slated to roll out in early 2021. and according to PayPal, that will be for all 26 million of the merchants on the PayPal network. Now, when we do get that shopping piece, the settlement will happen in dollars. Here's a quote from the press release. In effect, cryptocurrency simply becomes another funding source inside the PayPal digital wallet, adding enhanced utility to cryptocurrency holders,

while addressing previous concerns surrounding volatility, cost, and speed of cryptocurrency-based transaction. In other words, PayPal is making it so that their 26 million merchants don't have to, quote-unquote, choose to accept crypto. They just do by default by working with PayPal, and PayPal abstracts away all the potential issues. The first assets that will be available for buying and selling are Bitcoin, Ethereum, Bitcoin Cash, and Lightcoin, and they're partnering with Paxos to offer the service. Also, this will only be PayPal and only in the U.S. at first, with Venmo and select international locations to follow early next year. We first had reports of this potentially coming down the pipeline a few months ago, but no one was sure when it was going to happen and what exactly the service was going to look like. Today, we got confirmation and a bit more information, but obviously there are still questions. So now let's discuss the debate or discussion around this happening on Twitter.

makes it bullish and what reasons for skepticism there are. Let's start with the bullish, as in some ways this is pretty transparent and self-evident. First of all, let's talk about the peer pressure element. Brad Michelson from E Toro put it really crisply. He said, I've said it before, but it's a very bullish sign that crypto trading is now a me-to feature in fintech. What he's referring to is the fact that Square's cash app has had Bitcoin features for some time and have seen extreme adoption and significant success and revenue from those features. You have to believe that PayPal, seeing Squares Cash app on the rise, got nervous about that and felt like this was something they had to do.

A second bullish factor is the validation of a historically skeptical company. Blockfolio put it really nicely, they said in 2014 PayPal tried to adopt Bitcoin to help Bitcoin, grow. Six years later, PayPal will now adopt Bitcoin to help itself grow. PayPal has had a spotty history with Bitcoin, where many times it stopped people from using Bitcoin. Originally, one of the earliest ways that people tried to use Bitcoin was through PayPal until they put a stop to it. So seeing it come full circle, where PayPal is adopting Bitcoin as a major initiative is pretty interesting and cool. Next up, normalization, even more than just validating

Bitcoin and crypto, this makes it so that it's just normalized for users. Every major money app they download, whether it's Robin Hood or Squares Cash app or PayPal or eventually Venmo, just have these features embedded because it's normal. It's normal for this generation of users to expect to have this feature. That normalization can't be overstated. It means that even people who haven't bought things yet are only a click away from doing so. There's not some big psychological hurdle. And what I mean by that is think about normal people with stocks. A huge number of people don't own stocks, but it's not because they're skeptical of stocks necessarily. It's just because maybe they've never gotten around to prioritizing that from a financial perspective.

That sort of normalization is hugely valuable for Bitcoin, and I don't think that the bullish impact can be overstated. And then there's scale. And of course, this is the big one. Across their family of apps, PayPal has something like 346 million account holders. Each of them couldn't even buy a tenth of a Bitcoin with the total available supply out there. This is just a huge number of potential users that could significantly expand the base of users for the entire industry. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn, and spend crypto all in one place, and earn up to 8.5% per year on your Bitcoin.

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Visit elliptic.co slash coin desk to talk to a crypto compliance expert today. That's elliptic.co slash coin desk. And lastly on the bullish side, there's the question of payments for shopping, but this one is big enough that I want to talk about it separately in a minute. First, let's jump over again to reasons for skepticism. In a tweet, Kaye Rosenbaum summed up pretty much all of them, says, we know nothing about PayPal's plans or implementation of Bitcoin. I expect KYC, freeze accounts, blocked payments. In other words, business as usual. Maybe I'm overly negative,

but I don't think status quo companies can handle Bitcoin. So let's break this apart a little bit. First is this question of co-optation, right? Big companies try by their very design to warp things to their own ends, to have things serve them. Bitcoin is something that exists outside. of those big companies, but again, there will be a tension between what Bitcoin inherently enables and how PayPal wants to railroad it into its own system. One specific example of that might come in the form of lack of user sovereignty. Marty Bent tweeted a question that a lot of people have had, will PayPal let users send Bitcoin to personal custody? If it's anything like many of the other services out there like Robin Hood, it won't. People will only be able to buy and hold and interact with

these cryptos in the context of the app itself. A third question is around censorship, Stop and DeCrypt tweeted, PayPal shuts down user accounts over political opinions. Bitcoin doesn't. Effectively, the distribution mechanism of a centralized app removes a layer of censorship resistance, which is part of what makes Bitcoin so different and so important. I've even seen some people worry about scale issues that might arise from this being a runaway success. However, ultimately, I think the biggest and best source of skepticism is that the availability of the asset doesn't solve user interest for the asset. Cryptobobabby tweeted this. He said, My negative Nancy take. PayPal News is simply a bullish headline. Access to 300 million users

is great, but it's not like those users don't already have the opportunity elsewhere to buy Bitcoin. I'm all for bullish headline pumps, though. This gets back to that normalization, and I think the real question is how much does easier availability plus normalization translate? Or maybe a better way to put it is, what percentage of those 346 million users who haven't jumped into Bitcoin yet does it tip over into the Bitcoin space? I do think, though, that it's really important that we don't conflate availability with demand. So now let's talk about this payments and shopping question for a minute. Chris Madden, who was a founder at Button and was at Venmo for a while, wrote,

Forget allowing users to buy crypto. Pay with crypto through PayPal is huge news. Joe Wisenthal from Bloomberg tweeted, I disagree. There's no point in paying for anything in crypto, and paying for something in crypto using a regulated financial entity is doubly pointless. The buying part, not the spending part, is where it's at. Mike Dutas then tweeted a vision of a future that has this shopping piece as an important part. he writes, 2025. PayPal now has brokerage. Users hold a bunch of digital tokens, stocks,

cryptocurrencies, digital dollars, stablecoins. Crypto and stablecoins are money with higher returns, appreciation, yield, staking. Plus, there are another payment method beyond cash, credit, and debit cards. So here's my take. I sympathize with both sides. I don't think that people want to spend their Bitcoin, and I think the more that they learn about Bitcoin and the longer they hold, the less they want to spend their Bitcoin. However, I also think that real life sometimes demands liquidity. I think that for most people, at certain points, convenience trumps discipline. The easiness of payment integration with PayPal for merchant uses reinforces or could reinforce why Bitcoin as a hoddle asset is better than a traditional safe haven like gold. Basically, I wonder to what extent

the opportunity to make it very easy for certain types of payments makes it more appealing even for people who really, really, really never want to have to use it for payments. I also think we shouldn't underestimate the potential global piece of this. Simon de la Ruevier, who's in South Africa, wrote, this is actually useful if you aren't on first world payment rails like South Africa. For example, the only way to get my book sales from Gumroad is through PayPal and then withdrawing into a bank account. Now I might not need a separate bank account. So it could be that actually in certain cases where international payment rails aren't sufficiently developed, this actually does make a meaningful difference in terms of using cryptocurrencies. Lastly, however, though, I want to talk about a

detail that I'm not seeing as much discussion about, but hit me over the head like a hammer. When I first saw this news, I assumed that it was primarily driven by a Me Too follow-up around Squares' Cash App success with Bitcoin. However, when you read the press release, it is very clear that this is about positioning for a central bank digital currency world. Reuters wrote, PayPal hopes the service will encourage global use of virtual coins and prepare its network for new digital currencies that may be developed by central banks and corporations, President and Chief Executive Dan Shulman said in an interview. But let's take that even

farther and look at the actual source material. Let's look at the press release they released. Their big banner feature quote from Dan Shulman, President and CEO, was this. 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 payment system, and the ability for governments to disperse funds to citizens quickly. Our global reach, digital payments expertise, two-sided network, and rigorous security and compliance controls provides us with the opportunity and the responsibility to help facilitate the understanding, redemption, and interoperability of these new instruments of exchange. We are eager to work with central banks and regulators around the world to offer our support

and to meaningfully contribute to shaping the role that digital currencies will play in the future of global finance and commerce. I mean, hell, the first words in the press release anywhere are, the migration towards digital payments and digital representations of value continues to accelerate, driven by the COVID-19 pandemic and the increased interest in digital currencies from central banks and consumers. This is exactly what I was talking about yesterday, the massive competition that will happen around provisioning for central bank digital currencies. You have companies from MasterCard to line in Japan, by the way, sorry I said China yesterday.

All of these companies are setting themselves up to be the partner for central banks because they believe that the shift to digital currencies is inevitable. That's a huge part of this story and really, really important to watch. Interestingly, Dan McArdle tweeted, PayPal wallet might be really convenient for insta-swapping your central bank money into Bitcoin. So that's another use case that we should keep an eye on. So now what matters is the market's response, and it's looking pretty good so far. You've got PayPal's stock price up about 3% when I'm recording this.

You have Bitcoin up a couple hundred dollars as well with lots of attention there. And then you have, of course, the raft of people who are sending tweets about their friends, messaging them, asking them if they should get in on this. So all the first indications point to this being something pretty big. So the question becomes, is this the most bullish news of the year? And it's been quite a year for bullish news. We've had the halving at the same time as quantitative easing around the world. Paul Tudor Jones' great monetary inflation piece.

We've had Square and the Gigacad himself, Michael Saylor, getting into Bitcoin Treasuries. We've had the longest streak above 10K in Bitcoin's history. So is this the most bullish news? I think I'm going to rank them on Saturday. So come back and we'll talk about it then. All right, guys, I hope you're having a good one. I hope you enjoy this episode. Enjoy the conversation around what is a crazy bit of news.

And until tomorrow, be safe and take care of each other. Peace.