PayPal Gets Serious About Bitcoin – Is the Price About to Move?

Screen Shot 2014-09-23 at 12.57.06 PMI haven’t written much about Bitcoin as of late. While the positive fundamental news has continued to pour in with regard to adoption and venture capital investment, watching the price action has felt like watching paint peel off a wall.

When friends have asked me about the price action as of late, I only note the bizarre discrepancy between the fundamentals and price. One reason for this seems to be muted buying interest, coupled with miners who have already invested heavily in mining equipment, selling their reward blocks immediately in order to recoup some of their capital investment and offset energy costs. In addition, while banks have stated they are holding off with regard to Bitcoin until there is more regulatory certainty, it appears clear to me that the big banks are doing everything they can to stall Bitcoin adoption. This was confirmed last week when banks cracked down on the exponentially growing Bitcoin ecosystem in the Isle of Man.

Although PayPal has been publicly flirting with Bitcoin for some time, today’s announcement marks the company’s “first formal offering to the Bitcoin community,” according to Coindesk. When I initially heard the announcement, I knew it seemed significant, but I also noticed the price was somewhat slow to react. This seems to be due to exhaustion within the community with the aforementioned discrepancy between fundamentals and price. Nevertheless, I pulled up the chart and noticed that the BTC price had a good opportunity for a bullish daily reversal today. So I tweeted:

Since then, the price has jumped another 7% and the technical picture has started to look a lot more interesting. Here’s the full announcement from Scott Ellison, Senior Director Corporate Strategy, PayPal:

Bitcoin has been big news this year, and for good reason. Although crypto-currencies have been around for some time, only Bitcoin has achieved significant scale. This new entrant in the world of payments has people asking lots of questions – including how and if PayPal will decide to work with Bitcoin. 

While we’re focused on giving people everywhere safer and more seamless buying experiences, we’re also fierce advocates of giving businesses — and in turn their customers — flexibility and the freedom of choice. Earlier this month we announced that businesses working with Braintree will soon be able to accept Bitcoin as a payment option through their innovative v.zero SDK and relationship with Coinbase.

Today we are announcing PayPal’s next step in helping merchants accept Bitcoin payments. PayPal has entered into agreements with leading Bitcoin payment processors BitPayCoinbase and GoCoin. Starting today, these agreements let PayPal digital goods merchants accept Bitcoin with a simple integration through the PayPal Payments Hub. This will be available to merchants in North America first.

We chose to work with BitPay, Coinbase and GoCoin because of our commitment to offering innovative and safer ways for businesses to accept payments. All three companies have taken steps to ensure that they know their customers and that those customers are offered certain protections. We believe digital goods merchants will be excited to work with these industry-leading companies to sell ringtones, games and music and get paid with Bitcoin.

To be clear, today’s news does not mean that PayPal has added Bitcoin as a currency in our digital wallet or that Bitcoin payments will be processed on our secure payments platform. PayPal has always embraced innovation, but always in ways that make payments safer and more reliable for our customers. Our approach to Bitcoin is no different. That’s why we’re proceeding gradually, supporting Bitcoin in some ways today and holding off on other ways until we see how things develop.

But giving our digital goods merchants an easy, one-stop way to test the waters with this new form of payment isn’t the only way we work with Bitcoin.  For some time now, we’ve helped merchants selling Bitcoin mining equipment to accept PayPal payments. This will continue. But to safeguard customers, we’ve decided not to work with merchants who pre-sell these products.  This is consistent with our approach to pre-sales of other goods; we hold off anytime we determine that pre-selling may not provide a good buyer experience.

Pre-selling is when a business asks for money up-front for a product or service it will deliver in the future. Customers may not get their money back if the business goes out of business before the product is shipped but after a buyer protection period expires.  Again, our decision not to support pre-sales is shaped by our desire to protect our customers.

PayPal also needs to follow the laws and regulations in every market we operate. For this reason, virtual currency exchangers and administrators interested in working with PayPal in the future must secure the appropriate licenses and put anti-money laundering procedures in place.

PayPal is excited about all the innovations taking place in payments these days. More choices in how people create value, share it, buy, sell and trade it – that’s exactly what PayPal is all about. And we believe Bitcoin offers unique opportunities as more people and businesses experiment with it. We are excited to work with businesses and business models that allow us to offer new experiences and the trusted service our customers expect. We hope to do more with Bitcoin as its ecosystem continues to evolve.

What’s clear to me is that the courtship period is over. PayPal and Bitcoin are now officially seeing each other. Whether or not this evolves into a full fledged partnership remains to be seen, but my guess is that it will.

I also find it interesting and encouraging that the positive news from PayPal comes on the same day that the despised mining manufacturing equipment company Butterfly Labs had a civil lawsuit filed against it by the Federal Trade Commission (FTC). Arstechnica reports that:

Federal authorities believe that the three named members of the company’s board of directors—Jody Drake (aka Darla Drake), Nasser Ghoseiri, and Sonny Vleisides—spent millions of dollars of corporate revenue on all kinds of things, including saunas and guns, while ignoring many customer orders that went unfulfilled or were significantly delayed.

“The FTC alleges that one corporate defendant and three individual defendants have taken in over $50 million by operating a scheme that required consumers to pre-pay for machines that would allow consumers to ‘mine’ for Bitcoins, a new virtual currency,” the complaint states. “Defendants either never delivered these machines or delivered them so late that they became obsolete.”

I think it is a very good sign that the PayPal news comes on the same day that one of the worst actors in Bitcoin bites the dust. Also in the positive news camp, we may be finally seeing some demand side activity with the entry into the market of hedge fund GABI. I covered GABI’s interesting story previously, but it seems the firm has now started buying.

I haven’t purchased any BTC recently due to my confusion about the discrepancy between price and fundamentals, but today I decided to add to my position. Only time will tell if this is a wise choice.

In Liberty,
Michael Krieger

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3 thoughts on “PayPal Gets Serious About Bitcoin – Is the Price About to Move?”

  1. bitcoin has a massive risk; the treasury/fed and occ and sec simply change their mind about the legality of banks providing money services for sovereign currencies.

    if that happens, the bitcoin price will crash enormously. as you will be left only with black market conduits to trade bitcoin for sovereign currency.

    the price of bitcoin was only 100 dollar a year ago. and a year before that it was very low compared to today 400 price.

    i think bitcoin has come up in price so quickly so fast, people have forgotten what and how value is come by.

    the bitcoin payment network probably won’t easily go totally out of usage, but it’s entirely possible the price goes below what it was a year ago at 100 dollars.

    as with all major swings up and down——–they are self reinforcing.

    the majority of bitcoins are still held by just a few hundred people.
    within a few years from now by 2020, 97% plus of all bitcoins will have been mined.

    at that point the ‘deflationary’ aspect of bitcoin should put some more pressure on the price upwards. but that is a long time from now. miners approaching that date will have to charge higher transaction fees to compensate for the lack of mining rewards. the miners influence upon prices might be a wash going forward. but the ownership of the existing money supply of bitcoin remains highly concentrated.

    that fact is also a major overhang of bitcoin price keeping a trailing ceiling on the bitcoin price.

    ultimately until bitcoin finds a ‘home’ sovereign , which it might never do——-there will be no way of running an entire circle of transactions from farm to plate ( paying your farmer , transporter, distributor, and grocer ) upon a circle of bitcoin transactions.

    we are a far shot from that future , if it ever happens. until then the promises of bitcoin 2.0 , blockchain data distribution, will simply be a sideshow to the present reality of bitcoin as a currency MOST useful for online transactions for gambling and , to a limited extent, for illicit black market transactions. while most people consider my last statement as negative black mark upon bitcoin used as a defamatory attack , i personally consider it bitcoins CORE STRENGTH.

    physical note dollars were used for bootlegging trade during prohibition. prohibition was a huge success for bootleggers. huge. the dollar allowed that to happen. if bitcoin can effectively play that role ( which i’m not so sure it can) ——-then it will be a massive global success. gold has survived for 2000 years because it is counterparty agnostic. it is a ‘black’ market currency in so far as it is YOURS.

    while bitcoin is leveraged to the interenet, whose backbone is owned by major corporates——–it is a territory that remains hard to control entirely. and shutting ‘it down’ has major major political ramifications . the powers that be are admitting defeat in using the threat of shutting down the net against any possible threat. it is a form of expensive triage and thus highly politically and economically unfavorable.

    in a world where your internet is not likely to be shut down, but possibly likely to be subject to more firewalls and more identification requirements for signing onto the network——bitcoin is fighting the territoriality of a transnational strategy amongst separate governments of independently balkanizing the internet for their own purposes.

    bitcoins very existential benefits come from this inherent conflict of fighting the balkanization. for this reason , in the long run of 20 years , i have some hopes for bitcoin. i own none. and i still accept that bitcoin could easily be abandoned to almost nothign—— in a world increasingly separated by trade/financial/and internet sanctions.

    would bitcoin survive ww3 . no. i would be optimisitc to believe any non-soveriegn digital currency would or could survive it.

    control over money is to valuable for people not to kill each other over it. the payment network is the ultimate prize, only after the property rights to control life itself.

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  2. It will be interesting the next time some big corp that has been accepting Bitcoin along with legacy payments gets a major hack, and all the customer data gets dumped on the dark markets *except* the Bitcoin using customers. That alone might generate some significant conversions. Merchant adoption alone to me is pretty boring… I want to see killer apps like Bittunes, OpenBazaar, and maybe some video games where players make money with their mad skillz. Developments in the space that do thinks that are impossible with MasterCard, Western Union, etc etc are where the real story is IMO.

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  3. Can’t help it; It’s gone from nothing to making people millions…..and waaaaay back down.

    Then the Fed’ wants in on it – and when a 100% criminal enterprise gets involved, well……

    Sorry. Makes me VERY nervous.

    Reply

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