Empire Newsletter: Tracking PayPal’s rise as a crypto company

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Crypto has a pal

As far as crypto adopters among fintech giants, PayPal is right up there.

Mastercard and Visa may have been working with the space a little longer, but PayPal has got its hands dirty in blockchain in a very particular way.

First, its move to let US-based users buy bitcoin and three other cryptocurrencies directly from the app in October 2020 was prescient.

While the price of bitcoin had looked strong after the COVID crash earlier in the year — more than doubling from $5,200 to $11,000 by the time of PayPal’s announcement — it was still well below its 2017 peak.

Bitcoin would go 6x in the five months after PayPal added crypto in its flagship app, and it had set a $69,000 top for the 2021 bull market cycle just one year later.

Unfortunately, PayPal’s SEC filings don’t show how much crypto PayPal users had bought throughout the first year or so.

But starting in Q2 2022 (about a year and a half after crypto was added), PayPal disclosed safeguarding around $600 million in user crypto. Last quarter, PayPal users were sitting on $2.85 billion in crypto.

Bitcoin made up about 60% of the crypto held in PayPal wallets at the end of Q1

Granted, rising crypto prices had a lot to do with the big jump in between the previous two quarters. Bitcoin swelled by as much as 70% across December and the end of March, setting a new all-time high to boot.

PayPal doesn’t disclose the exact number of bitcoin or ether held by its users. Still, a rough estimate is possible by comparing the value of user crypto at the end of each quarter with prices around the same time.

That shows PayPal users may have either net sold their bitcoin and ether between Q3 2022 and Q4 2023, or withdrawn their crypto from the app.

But between the end of December and the end of March, they could’ve increased their bitcoin and ether holdings by up to 50%. At least, that’s what the napkin math suggests.

PayPal users were sitting on an estimated 24,000 BTC at the end of March

As for PayPal’s own branded stablecoin PYUSD, issued in partnership with Paxos (which also facilitates its crypto wallet), it’s humming along nicely.

It even hit $5 billion in onchain volume on Ethereum, according to a Dune dashboard from SQRR Research.

Adding that volume with trading volumes on centralized and decentralized exchanges reflects slow and steady adoption of PYUSD from traders: $333.5 million in the past week compared to $62.5 million in the first week of January. And that’s only the trading pairs on TradingView.

There’s been at least $5.4 billion in PYUSD volume across Ethereum and Solana, as well as trading pairs on Kraken, Coinbase, Kucoin and others

But perhaps the most crypto-savvy decision of all from PayPal was in its choice to only add a small selection of coins to its platform, besides PYUSD: bitcoin, litecoin, bitcoin cash and ether.

All those cryptocurrencies run on proof-of-work, or at least, ether did in October 2020, which was two years before its switch to proof-of-stake.

Meanwhile, Coinbase and a string of other crypto exchanges are now fighting for their right to list swathes of other cryptocurrencies, predominantly tokens from proof-of-stake networks.

Watch out for PayPal to add some of those to its app, should Coinbase win.

— David Canellis

Data Center

• 72% of PYUSD on Ethereum is on centralized exchanges, equal to $274.4 million.
• 26% is in miscellaneous Ethereum wallets, while only 2% ($7.8 million) is in DeFi, referring to DEXs and lending protocols.
• PYUSD is seeing the most DeFi usage through Curve.fi and CoW Protocol.
• BTC and ETH are in lockstep, both adding a tad over 2% in the past day and 11% in the past week. (BTC: $63,800; ETH: $3,420).
• Memecoins PEPE, WIF and FLOKI are leading the top end of the table, all up over 20% on the daily candle.

In stealth mode

PayPal is indeed one of the most interesting crypto-exposed companies in the space right now.

When you dig through their earnings reports and analyst notes, they tend to stay rather mum on the topic of crypto.

In the first quarter earnings call earlier this year, for example, PayPal really just said that it planned to eliminate crossborder transaction fees when funding with PYUSD.

CEO Alex Chriss, at the time, said they believe there’s “compelling unit economics and market upside” for that specific area.

And then we get announcements such as the PYUSD Solana integration.

PayPal’s Paul Bances, in his chat with Empire host Jason Yanowitz on today’s episode, said his company is “in this.”

“This is not a hobby for us. We have a very dedicated group of folks who really believe in the things that we’ve been building and it’s been wonderful to see that grow and finally be out,” he added.

And honestly, the head-down approach may very well be working out.

Earlier this month, PayPal stock received an upgrade from Susquehana. Analysts James Friedman and William Tang bumped the firm to positive from neutral with a $71 price target. The two didn’t really delve into the crypto side of the business but did note that the firm is now focused on “profitable growth.”

Outside of that, PayPal’s stablecoin continues to rise, with PYUSD ranked seventh by market cap.

CCData noted that, in June, the market cap rose 86.3% to top $499 million — a new all-time high — after it announced its integration into the Solana network.

So maybe one of the reasons PayPal isn’t as vocal on the Wall Street side of things is because their crypto business is currently speaking for itself.

Earlier this year (in case you missed it), the venture capital arm of PayPal also invested $6.5 million of PYUSD into digital transaction security firm Mesh. The investment is the first time since spring 2023 that PayPal invested in the crypto space.

Despite the most recent earnings and investor presentations staying quiet about crypto, we could see some language in PayPal’s July 30 earnings.

Especially so after hearing the bullish tone towards PYUSD presented by Bances on Empire.

“No one is situated like we are and what we’re trying to do here, which is really laser-focused on the payment side obviously, there’s going to be activity on the crypto side of the house. And we love that. And we love what people are doing in the ecosystem and…want to support developers and building on this,” Bances said.

And when you look back, former CEO Dan Schulman — who stepped down a few years ago — was pretty positive on crypto. He believed that it could be a general payment method in the next five or so years.

The bullishness is clear, so I’ll be keeping an eye out at the end of the month to see what they have to tell Wall Street.

— Katherine Ross

The Works

• Ripple donated to a new super PAC dedicated to electing pro-crypto attorney John Deaton over incumbent Senator Elizabeth Warren.
• Bloomberg’s Eric Balchunas said that the ETH ETF issuers heard back from the SEC, and the products may launch as early as next Tuesday.
• Spot ether ETFs could see between $4.7 billion and $5.4 billion of potential net inflows into the products, Citi analysts said.
• Japanese company Metaplanet added $1.2 million more bitcoin to its balance sheet, bringing its total to 225.61 BTC ($14.4 million).
• Craig Wright was referred to British prosecutors for committing alleged perjury in the UK, CNBC reports.

The Riff

Q: Is PayPal a crypto company?

Unequivocally.

What’s interesting is whether they position themselves to promote that more. So far, as I noted above, they haven’t really. Though it’s clear that company insiders are feeling positive about this space.

With the stock down roughly 18% over the past year, I wonder if they’ll lean into crypto more. Though it’s still tough from a regulatory standpoint. The firm has, outside of a disclosed subpoena on PYUSD last year, stayed out of the SEC’s path, unlike fellow TradFi-crypto firm Robinhood.

Either way, there’s no doubting its quiet growth within crypto.

— Katherine Ross

Not only PayPal. It’s proof that all companies will one day be “crypto companies.”

Microsoft became a crypto company when it started accepting bitcoin in its Xbox Store through a BitPay partnership in 2014.

If Netflix were to accept bitcoin for subscriptions, it would also become a crypto company.

PayPal was just earlier than most. And besides, when you’re storing billions of dollars worth of crypto on behalf of users, you’re not just a crypto company.

You’re more crypto than most.

— David Canellis

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