4 reasons Paypal support is a mixed bag for Bitcoin

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4 reasons Paypal support is a mixed bag for Bitcoin

By Benson Toti - min read

Following Wednesday’s announcement from Paypal that it will offer crypto services to its 24 million merchants, there has been a mixture of excitement and scepticism to the news

Bitcoin moved by over $1,000 in a single day yesterday, with many speculating that the market had responded to the news that Paypal will now support Bitcoin.

The payments giant has suffered from a lack of direction in recent years, with the advent of Apple and Google Pay having made online payments much quicker. Now, it seems to have followed the actions of Square and Greyscale, firms that recently bought millions of dollars worth of Bitcoin to shore up their reserves, by getting involved in the crypto market.

Could help Bitcoin have weekly close above $13,000

The significance of Paypal’s news will be tested over how its price moves over the weekend. If Bitcoin has a weekly close above $13,000, it will be the first time this has happened since January 2018 — which some will remember was the aftermath of Bitcoin’s previous all time high.

If Paypal helps Bitcoin break this major resistance level this weekend, then this could mean that the market places more significance over other major payment platforms offering their support in future, pushing Bitcoin to a new all time high by the end of 2020.

In talks to buy BitGo

Following the announcement, it was also revealed that Paypal is in talks to buy BitGo, a custody service for digital assets. This could signify a change in Paypal’s strategy to buy up crypto firms and secure its position in the market before other institutional investors start to make their moves.

BitGo was reportedly valued at $170 million in 2018, so Paypal will likely have to pay a cut above this figure if they want the talks to be successful — owing to how much the cryptocurrency industry has evolved in the last two years since BitGo’s last valuation.

It could also be the case that Paypal wants to use BitGo’s custody services to expand the products it can offer for Bitcoin in the future as part of a shift in its business model.

Assets are liquidated when sold, applying downward pressure to price

The fly in the ointment of Paypal’s news is the fact that digital assets can be bought and sold on the platform, but cannot be withdrawn from your Paypal wallet. Some have argued that this misses the point of how Bitcoin is supposed to operate, as individuals owning their own wallets and private keys is behind Bitcoin’s core fundamental philosophy.

There have also been concerns for what this will do for Bitcoin’s price; if assets are kept in escrow by Paypal and then sold at a later date, this essentially means that the bitcoins are liquidated so that holders can be paid in fiat currency. If Paypal enjoys widespread adoption of its crypto offerings, then this could be a potential drag on Bitcoin’s price going forward as it will contribute to selling pressure as any Bitcoin used for purchasing will first need to be sold for fiat. However, if the coins were able to be removed from the platform, then the Bitcoin could instead be used to purchase other digital assets, thereby reducing downward pressure.

Mixed reactions to the news

The crypto community on Twitter has given a mixed reaction to the news. Some have highlighted the points above regarding the restrictions Paypal are placing on withdrawing assets from the platform, such as Plan B, the famed creator of Bitcoin’s stock-to-flow model.

Morgan Stanley’s assessment was that Paypal’s support for Bitcoin would do little for its profitability, saying it was “unclear” if this move would do much to boost the firm. In Paypal’s defence, as mentioned above in regards to a BitGo merger, this could be part of a wider strategy from the payments provider to get ahead of its competitors for the mainstream adoption of digital currencies.