PayPal Introduces Its Own Stablecoin, PayPal USD (PYUSD)
Could the launch of PayPal’s new stablecoin, PayPal USD (PYUSD), be the catalyst to ignite the next rally in Bitcoin and the rest of the crypto industry?
PayPal announced on Monday morning that it would be introducing its own US dollar pegged stablecoin, PayPal USD (PYUSD). The company stated that PayPal USD is designed to contribute to the opportunity stablecoins offer for payments, and it is 100% backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents. It is redeemable 1:1 for U.S. dollars and is issued by Paxos Trust Company.
Starting today and rolling out in the coming weeks, eligible U.S. PayPal customers who purchase PayPal USD will be able to:
- Transfer PayPal USD between PayPal and compatible external wallets
- Send person-to-person payments using PYUSD
- Fund purchases with PayPal USD by selecting it at checkout
- Convert any of PayPal’s supported cryptocurrencies to and from PayPal USD
This move is a continuation of PayPal’s current strategy of entering the crypto markets. In late 2020, PayPal began offering customers the ability to buy a handful of the largest cryptocurrencies through its platform, so offering a stablecoin is a logical next step in building out the ecosystem.
A stablecoin is a type of cryptocurrency designed to maintain a stable value, typically pegged to a tangible asset like a fiat currency (e.g., US Dollar, Euro) or a commodity (e.g., gold). Unlike other cryptocurrencies like Bitcoin or Ethereum, stablecoins aim to provide a more consistent and reliable value. They are often used in digital transactions, trading, and as a store of value due to their relatively steady price characteristics.
Creating a stablecoin in the current economic environment is also one of the least risky and most profitable ways for PayPal to expand its crypto products. Stablecoins, particularly in the context of higher interest rates, are a highly profitable vertical within the cryptocurrency realm. Stablecoin reserve portfolios typically comprise Treasuries, which have the potential to generate returns exceeding 5%.
While PayPal is making moves in the crypto industry, the company’s stock is currently trading at a discount. PYPL is trading at a relatively low valuation, with a one year forward earnings multiple of 16.2x, well below the industry average of 47x, and its 10-year median of 43.2x.
Regarding other players in the crypto industry, Bitcoin and other crypto-adjacent stocks have enjoyed strong year-to-date returns, despite regulatory challenges. Coinbase, a publicly traded cryptocurrency brokerage, was recently sued by the SEC, yet its stock (COIN) has rallied 140% YTD. Meanwhile, Square, the fintech company led by Jack Dorsey, is a top-ranked stock with exposure to Bitcoin (Block, SQ). Square plans to release Bitkey, a hardware-based crypto key that will function as a self-custody wallet. Dorsey is a well-known proponent of Bitcoin and regularly speaks on his support of blockchain technology and Bitcoin.
Bitcoin itself has seen a bullish setup this year, up 72% YTD. From a technical perspective, if Bitcoin can breakout above the $29,600 level, it may begin the next leg of its bull run. Alternatively, if it can’t hold the $28,500 level, Bitcoin traders should exercise caution as the technical setup will be invalidated.
Investors who want exposure to Bitcoin without directly buying the cryptocurrency may want to consider ProShares’ Bitcoin linked ETF, BITO, which is constructed using Bitcoin futures rather than spot Bitcoin.
In conclusion, PayPal expanding its offerings is a positive step for the cryptocurrency industry. Its stablecoin launch, backed by U.S. dollars, offers the potential for greater stability and reliability in digital transactions. While the impact on Bitcoin and the rest of the crypto market remains to be seen, this move could act as a catalyst for a rally.
