PayPal Gets Into Crypto
🚀 The quick version: Cryptocurrency’s push to become a mainstream source of payment has made some small inroads recently.
Here’s what happened:
Stablecoin market growth taking off. The basic idea of cryptocurrency was born out of the 2008 financial crisis. The goal was to create a form of money not reliant on any government (especially ones like ours that…ahem…can’t keep a budget) or any bank (that might go under or need a bailout).
This idea sounds reasonable in theory, but in practice is very difficult.
One of the reasons is that the price of crypto fluctuates too much to use for everyday transactions (you don’t want to be the person who paid 10,000 Bitcoin for a pizza… ok, two pizzas technically).
Some people think stablecoins might be the answer to this problem (aside: stablecoins are a type of cryptocurrency, but instead of just having a free floating value, a stablecoin’s value is pegged to something concrete like the U.S. Dollar).
PayPal creates a stablecoin. Enter PayPal, who recently announced they were creating a stablecoin of their own, called PayPal USD (backed by, you guessed it, the U.S. Dollar).
The advantages for Paypal customers are that they can use this stablecoin to transfer, pay, or send money instantly. If they want they can also convert their stablecoins to and from actual U.S. Dollars whenever they want.
Regulation heating up. So we have some potential here, right? Yes…well… maybe.
You also have to worry about the regulation.
A day after PayPal made its announcement, the U.S. Fed announced that all banks transacting in stablecoins need to obtain a written supervisory non-objection from the Fed before issuing, holding or transacting in them.
In english, this means the Fed needs to approve any bank or entity using stablecoins.
Potential new regulation will always be an issue in this sector; you never know what kind of curve ball is coming next.
👪 How it affects your family: These are the two main questions that everyone needs to answer for themselves before they get involved in cryptocurrency:
Do you believe that cryptocurrency will eventually replace currency we use today (like the U.S. Dollar)?
Do you think that cryptocurrency is a good investment for your money vs. other potential investment options out there?
On the first question, our opinion is that we do ultimately believe some type of digital currency will likely replace cash, but we aren’t convinced the replacement is out there yet or that it will even happen in our lifetime.
We kind of think about cryptocurrency right now similar to the internet in the mid 1990s (oh have we come a long way since AOL dial up in the living room).
Also, there are also so many entrenched governmental and corporate interests invested in the current financial system it gets hard for us to see a replacement that is truly decentralized without their involvement (on queue it’s worth noting the Fed recently started looking at creating a stablecoin run by the government).
As to the second question, because we don’t see crypto as having a path (yet) to be a true currency, we tend to question the investment merits in owning something (like Bitcoin) with no underlying value besides how much the next person is will pay for it.
With a stock, for example, you can do research and have a view on the companies prospects in the future and what owning a piece of those profits is worth. With crypto, right now to us it’s really just more about what you think the next person will pay tomorrow.
That said, we would also be the first to say this doesn’t mean investing in crypto is a bad idea (just because we aren’t invested doesn’t mean we are always right!).
If you are thinking about investing in crypto, we would suggest you start by answering the above two questions for yourself (maybe you come to a different conclusion).
Here are some resources to help you dig in more should you choose to:
Simplifying cryptocurrency. The world of cryptocurrency can get confusing. That’s why we created a short guide to help break it down and even learn how to explain it to the kids.
Investing in cryptocurrency. Taking it a step further for anyone interested in investing in crypto, we created a quick breakdown of how to actually do it.
Safe vs aggressive investments. There are many other investments available outside the world of crypto. The problem for many though is that it’s not easy thinking about where investments fall on the safe vs. aggressive scale. Hopefully some visualization can help.
