The Breakdown - PayPal Rolls Out Crypto for All US Customers

Episode Date: November 14, 2020

Today on the Brief: Christine Lagarde’s digital euro hunch Deutsche Bank CBDC note COVID-19 resurgent    Our main discussion: PayPal is rolling out crypto to all its users and increasing transaction limits from $10,000 to $20,000. In this episode, NLW breaks down the community response to the news, including an interesting discussion of whether the company’s BitLicense requires PayPal to hold 1:1 all the BTC its customers pay for.   

We are not seeing the same sort of retail mania that we had in 2017, and we're at a price that Bitcoin has only been at for something like 10 days of its entire life. So whether or not that is due entirely to PayPal or partly due to PayPal, it's clear that there is a lot going on under the hood of the Bitcoin community right now, and it is going to be exciting to watch play out. 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 and nexo.io and produced and distributed by CoinDest. What's going on, guys? It is Friday, November 13th. Yes, Friday the 13th. The last Friday the 13th

that I remember was in March, and it seems to me that the Bitcoin price has changed just a little since then. Anyways, I want to talk today about PayPal. rolling out crypto for all its U.S. customers. I did a survey of the crypto-twittersphere to see what people think, how big a deal it is now that this news has set in over the last month or so and also come to fruition. First, however, let's do the brief. First up on the brief today, the digital euro hunch. Christine Lagarde, president of the European Central Bank, was on a virtual panel with Jay Powell and Andrew Bailey, the Bank of England governor. Asked, as she always is, about a digital euro, she said, we might well go in that direction. My hunch is that it will come.

She also reinforced that this would be a complement to cash rather than a replacement, but said that if it's going to facilitate cross-border payments, they should be exploring it. Now, it seems that the digital euro is basically an inevitability at this point, despite the hedging, just in terms of how much they're talking about it. The Bank of Finland Governor Ali Wren last week told Reuters that he believed a digital euro is very likely in the next decade. Jay Powell gave the same answer he always does when asked about this, saying that the U.S. is considering but hasn't made a decision yet on a potential digital dollar. Andrew Bailey, the Bank of England governor, focused on a critique of privately issued stable coins and said that central bank digital currencies may address some of those

concerns. So this matters just as yet another indicator of how mainstream this conversation is. It really isn't a crypto conversation anymore. And what's more, it's not even really an economic conversation in some ways. It's a power conversation. When people are talking about what the role of central banks will be in the future, what a central bank digital currency might do to the existing relationships between citizens and private banks, it's a power conversation. Next up on the brief today, Deutsche Bank also wrote about CBDCs this week,

suggesting that they will replace cash. They have a periodical call to. concept and published a piece on Tuesday saying that COVID-19 has accelerated a trend of digital payments over cash and that eventually this will lead to CBDCs actually simply replacing cash. The report warns that countries that don't catch up may find that their countries are forced to, quote, adopt the digital currencies and policies of other countries as payment mediums. Seems very clear that Deutsche Bank was pointing this commentary at the U.S. and the EU, looking over at China's vast-moving CBDC experiments.

And the point here again is exactly what I was saying before, that really the CBDC conversation, despite the fact that they try to dress it up as such, is not about payments, it's about power. Last up on the brief today, COVID is back, baby. The top Wall Street Journal headline is U.S. case's top 150,000 for the first time. All-time high in hospitalization. School districts are planning to close, Detroit, Boston, Baltimore, Baltimore have already seen closures. New York schools are likely coming soon. And New York has also

started rolling out restrictions with gyms and bars being forced to close at 10. By the way, I've been loving the Gremlin's memes that show things at 9.59 and then at 1001 how COVID miraculously just comes then. But either way, I think the point is more that they're slow rolling but still very clearly adding restrictions. Chicago, just before I started recording this, just ordered a 30-day stay-at-home advisory asking residents to cancel traditional Thanksgiving plans. You have to think at some point the market starts paying attention to this. And you have to wonder if in some ways that will be the thing that forces the hand of government when it comes to stimulus. 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

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Not to mention the APR starts at just 5.9%. Stay on top of your investment game with nexo.io. And remember, it's your crypto, your credit, your choice. Get started at nexo.io. Let's shift our attention to our main discussion. How big a deal is PayPal's crypto rollout? So what happened? PayPal, as we discussed last month,

announced that they were bringing crypto. to their platform. They started rolling it out pretty soon thereafter, but it was limited to a very small set of users. PayPal is now rolling out crypto to all eligible US users. It has upped the purchase limit to $20,000 from the expected and previous $10,000, citing steep demand. They've also sped up the rollout. On their November 2nd earnings call, only 10% of U.S. customers had access, so this is a pretty quick shift. Now, at the same time, there is limited functionality. Here's something from their literature.

You currently are not able to send crypto assets to family or friends, use crypto assets to pay for goods or services, or withdraw crypto assets from your cryptocurrencies hub to an external crypto wallet. Really, all you can do is get exposure to the asset class. And so on a previous podcast, we discussed how big a deal this was, but I wanted to go back. You know, we've had some time now for people to wrap their heads around it, to dig more into the offering.

and really come to see what it is and where it sits in terms of the industry. So I want to share a few hot takes that I got from Twitter about what this rollout means and whether or not it matters. Ryan Selkis from Masari focused on the assets available, saying, I don't understand how BCH and LTC are still included in any serious product rollouts. They bring nothing to the table. Just hot piles of garbage. Stop.

Another common sentiment that I saw was that given that we raced across that $16,000 threshold, the number go up economics appear to be checking out. That's how Eat Cook Cryptos put it. And I saw that sentiment over and over, trying to connect that day's price action with the PayPal news. Now, in terms of critique, the biggest thing that I saw was summed up by Matt O'Dell, who said, you cannot buy Bitcoin on PayPal. They only sell IOUs.

This is definitely the biggest critique, the biggest level of skepticism has to do with the limited functionality. People asking the question, is it actually really the self-sovereign asset that we know it to be or want it to be if we have so little control over it? Another interesting sentiment had to do with the idea that PayPal was creating its own stability. Someone tweeted 20,000 per week means they're trying to limit the number of bitcoins you can buy or sell. Boy, wouldn't it really suck if you had 100K in there and had to take five weeks to sell it, they're creating their own stability by limiting how much you can buy or sell. Another really interesting take was that there may be wider implications for PayPal strategy, with someone responding to my message saying

it's just a first step. Their next step is to use some stable coin for settlements, cutting out their traditional centralized finance partners. Still, there is no doubt that the widest sentiment is that even with the IOU issues that we discussed before, this is a huge, huge deal. I'm going to read through a few of the comments that expressed this. It's an easy button. How many buyers get frustrated trying to sign up at Coinbase trying to figure out a wallet? They already have an account, push a button, and now they're in. Is it how we all would buy it? No, but that's not PayPal's target market. It's big for newbies who have been wondering but haven't put in the energy to learn how to properly buy Bitcoin. It'll give them exposure, and if number

go up, they'd be more than happy to increase their holdings. A number of people also explicitly saw it as a stepping stone. On the steps to self-sovereignty, this is step one. Yes, they're selling Bitcoin I'll use, but everyone has to start somewhere, and this will get Bitcoin onto people's radar. I'm a strong believer in giving people space to discover Bitcoin in their own time. Very few go zero to node. Whatever we Bitcoin purists think about the PayPal model, there's no denying the positive impacts on narrative, adoption, and demand pressure. Absolutely critical to growth. Once PayPal newbies dip a toe into the Bitcoin ocean, they'll soon be swept up by the hoddle tsunami. There's also, of course, the social safety argument with someone saying,

I think it'll hugely increase societal acceptance. At the moment, there is still a huge amount of fear and misunderstanding regarding it as illegal or to fund criminal activity. Once your old Auntie Gladys can buy it, it'll never be the same again. And finally, there's some interesting knock-on effects. OK Coin responded and saying, it is certainly changing the dynamic for us in the industry. Now, there's just one more point that I thought was really interesting that I wanted to highlight. Jameson Lop tweeted, if I understand this correctly, PayPal is legally required by its bit license to hold real Bitcoin one-to-one for every Bitcoin a user buys on its platform.

Where my crypto lawyers? One of those crypto lawyers, Bully Esquire, had actually responded to my prompt with something very similar, saying, my hot take is that PayPal's New York license requires Paxos, its custodial agent to hold one for one all Bitcoin that its users buy. PayPal currently has 286 million active users that could really send Bitcoin into a sell-side liquidity crisis if it picks up. Now, of course, that's 286 million global users, and this is only for U.S. residents. But still, I think the point that there could create this intense buying pressure is really interesting. It'll be interesting to watch play out. Whatever the case, right now Bitcoin is sitting above 16,000 and looking strong. We are not

seeing the same sort of retail mania that we had in 2017, and we're at a price that Bitcoin has only been at for something like 10 days of its entire life. So whether or not that is due entirely to PayPal or partly due to PayPal, it's clear that there is a lot going on under the hood of the Bitcoin community right now, and it is going to be exciting to watch play out. For now, however, I hope you're heading towards a great weekend. I appreciate you listening. And until tomorrow, be safe and take care of each other. Peace.