Quantifying PayPal’s Impact on Bitcoin Demand

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By now, most of us have heard that PayPal has been enabling the buying and selling of cryptocurrencies in the US for the past few weeks and will launch them in selected international markets in the first half of 2021. Initially, it includes four crypto staples – – Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH) and Litecoin (LTC).

It cannot be emphasized enough that this is a huge leap in crypto usefulness. Over 361 million active PayPal users can use their cryptocurrency balances to pay for goods and services with 26 million merchants worldwide.

For investors, this means that these four cryptocurrencies will have a strong surge in demand over the next 6 to 12 months as PayPal users, especially Millennials, start buying up these coins. We suspect other digital payment card competitors for PayPal and Square (Cash App) are not lagging far behind in their own cryptocurrency initiatives.

Since PayPal’s announcement on October 21, the price of Bitcoin has increased 50% from $ 12,000 to $ 18,000. Sure, there have been other catalysts (institutional and corporate assignments to Bitcoin), but we believe PayPal is the main driver behind the recent gains, and it’s just the beginning.

Source: altFINS

The general public is eager to dip their toes in the digital assets, but it remains inaccessible to most due to its complexity and security concerns. PayPal takes away all of that complexity and uncertainty.

We assume that the demand for the four selected cryptocurrencies could significantly increase their prices in the next 6 to 12 months.

How much BTC could the PayPal user base buy? As of November 2nd, only 10% of PayPal users in the US had access to the crypto services, and from November 12th it was rolled out to all US users. Due to popular demand, PayPal increased the maximum amount a user could buy from $ 10,000 per week to $ 20,000 per week.

The purchase has clearly started. PayPal’s volume is handled through itBit Exchange (owned by Paxos, based in the US and licensed). Notice how their volume has tripled over the past few weeks from an average of $ 5.6 million per day to an average of $ 15.7 million, reaching as much as $ 31 million on November 17th.

Quantifying PayPal’s Impact on Bitcoin Demand

Source: Nomics

To gauge future BTC demand from the PayPal user base, we can do a quick math using Square (Cash app) as a guide. Square enabled the purchase of Bitcoin from 2018, the “crypto winter” after the ICO bubble in late 2017 / early 2018. Activities increased significantly in 2019 and accelerated in 2020.

Quantifying PayPal’s Impact on Bitcoin Demand

Source: altFINS; square

Square has approximately 30 million users on its Cash app, which enables Bitcoin purchases. In Q3 20 (ending Sept. 30), Cash App users bought $ 1.63 billion worth of Bitcoin, or an average of $ 54 per user, up 87% from the previous quarter.

Assuming that PayPal’s user base buys the same amount of $ 54 per user, that means 361 million users could buy $ 19.7 billion worth of Bitcoin. Does this make sense? You can bet it is. Bitcoin’s current market capitalization is $ 326.8 billion. PayPal users could generate a demand for 6% of Bitcoin’s market capitalization. That would move the price, and we’re already seeing that.

But let’s look a little ahead. Square Cash app user spending on Bitcoin increased 87% quarter over quarter in Q3 20, and it’s not unreasonable to see high double-digit growth in Q4 20 and all of 2021, averaging $ 122 per user in Q4 21 to be expected.

With these growth assumptions in the average spend per user, we can easily predict that PayPal users will generate a market cap demand of 15% of the Bitcoin market cap at the current price. It is important that PayPal users are not merchants, but investors, also known as hodlers. As a result, a significant portion of bitcoins could be withdrawn from the market, which would lead to an even greater scarcity.

Quantifying PayPal’s Impact on Bitcoin Demand

Quantifying PayPal’s Impact on Bitcoin Demand

Source: altFINS; Square; PayPal

What if all other PayPal competitors comply with this step? And what if neobanks like Monzo, Atom Bank, Tide, Chime, Simple, N26 and Monese switch to PayPal? And if we draw on demand from institutional investors and companies that are gradually investing only a few percent of their assets in digital assets – – Bitcoin becomes moon.

Richard Fetyko

Richard Fetyko is the CEO and founder of altFINS and has spent most of his career on Wall Street as an equity research analyst and portfolio manager.

Featured image: Shutterstock / mTaira