Summary PayPal aims to launch its own stablecoin, backed by U.S. Treasury bills, to expand the role of cryptocurrencies as a medium of exchange. The entry of PayPal into the stablecoin market is seen as an opportunity to reverse the declining value of stablecoins and to build the payments system of the future. PayPal's move follows initiatives from financial establishment players to engage in the crypto industry and seek regulatory approval for a new crypto exchange. PayPal's efforts are certainly worthy of watching. The goal of Bitcoin (BTC-USD) was to become the "money" of the world. It would serve as a store of value and a medium of exchange. Bitcoin has mostly succeeded as a store of value. As a medium of exchange, Bitcoin, and other cryptocurrencies have not had much success. Enter PayPal (PYPL-USD). This past week, PayPal announced that it would launch its own stablecoin. PayPal, a worldwide leader in the area of payment systems, now wants to use blockchain technology to expand the role of the cryptocurrency world to be an efficient medium of exchange as well as a major supplier as a store of value. PayPal wants to use blockchain technology to provide the world with a state-of-the-art payment mechanism. PayPal's effort, known as PayPal USD (PY-USD), will back its stablecoin with U.S. Treasury bills. PayPal's tokens, however, can only be used within the PayPal ecosystem. "PayPal has an existing consumer base, it's trying to reverse into the crypto market by monetizing its user base," argues Tom Keatinge , founding director of the Center for Financial Crime and Security Studies at UK think-tank RUSI. But, and this is very important, this may be the only real way to get to a cryptocurrency format that really functions. PayPal seems to have a very realistic approach to making the crypto-scene work. Historically, There Have Been Problems Recent history is very clear on this point. Since, "Stablecoins are as vital to crypto markets and are akin to chips at casinos: they allow traders to move in and out of between easily, into wallets rather than lots of traceable accounts," writes Scott Chipolina in the Financial Times . "Unfortunately they are also fundamentally tied to sectors of the crypto market that have underperformed all year." "According to research provider CCData, the circulating value of crypto's dollar-pegged tokens has fallen to $125 billion, down from $188 billion in March last year." "The decline not only represents the sector's lowest market cap since August 2021, but stablecoins are on trend to record 17 consecutive months of declines." The entry of PayPal at this time is seen as the move to break this fall. And, according to Michael Casey, writing for CoinDesk , "…in the grand scheme of things, PayPal is in a far stronger position politically than" other attempts have been, hence giving PayPal a real chance to do something that will succeed. Furthermore, "Just as importantly, PayPal's move follows a slew of initiatives from financial establishment players to prod policymakers to support their own engagement in the crypto industry." "Meanwhile, Charles Schwab, Fidelity, and Citadel are jointly seeking regulatory approval for a new crypto exchange." "These institutions do their homework in Washington before going down paths like this, as does PayPal." And, they are coming from another place. PayPal and these others are not just "libertarian" visionaries that are trying to introduce a new philosophy, a new ideal, to the system. The question is, can the PayPal approach get around the concerns that have built up in the investment community and in the world of regulation? My feeling is that they have a much better chance of getting through the jungle than do many of the others that have made efforts in the recent past. The Historical Scene The PayPal effort will continue. The PayPal effort is just one part of the innovative spread of information. The effort is not going to stop. There may be more months of financial decline to the whole market effort, but my guess is that the fall of value in the marketplace will be over in six months or a little longer. To me, the major problem that the cryptocurrency world faces is that the original presentation of cryptocurrencies was primarily of "theoretical" intent. The world of cryptocurrencies was a world seen to be fully free of governmental connection and fully free of market imperfections. The original world of cryptocurrencies was a world of libertarian dreams. No wonder that one of the immediate responses was from Jamie Dimon, CEO of JPMorgan, Chase & Co., who dismissed the effort almost from the start. Now we have people like the author George Gilder, in his very new book "Life After Capitalism" (Regnery Gateway, 2023), arguing for a monetary system whose foundation is the Bitcoin. Mr. Gilder has moved from a love for a monetary system that is based upon gold, to one that is based on a rigidly constructed cryptocurrency system. How we get there is another story… one not yet written. Where We Are Now Investors must now keep their eyes closely focused upon the efforts being made by PayPal. Many analysts really seem to believe that PayPal has a real chance to make the crypto world a reality. I still have many doubts about cryptocurrencies. To me, it is still built upon idealistic dreams. But, let's give it a chance. We cannot guess the outcome yet. We have no real idea of what the new financial world is going to look like except that in one way or another it is going to be digitally conceived. Let's see what happens.
