PayPal is launching a stable cryptocurrency token. In doing so, it becomes the first major institutional player to expand cryptocurrency payments on such a scale. It chooses to do so despite the recent tightening of scrutiny of digital assets by US regulators. The company has announced the launch of a stablecoin called PayPal USD (PYUSD), which will be pegged to the US dollar. With this in mind, let's take a closer look at what we know about the new cryptocurrency. Let's also consider what impact it could have on the crypto market as a whole and on PayPal's own shares.
PayPal USD and the stablecoin market
The PayPal USD (PYUSD) stablecoin is offered through Paxos, a provider of cryptocurrency and blockchain technology services. Paxos has experience in similar services, having already offered other stablecoins such as Binance USD (BUSD) and Pax Dollar (USDP). It has also partnered with Mastercard to broker the purchase of cryptocurrencies.
Unfortunately, Binance BUSD has experienced regulatory issues that have limited its reach. Paxos also ended its partnership with Binance, which negatively affected the capitalisation of this stablecoin.
PYUSD runs on the Ethereum network and uses smart contract technology. It is compatible with the ERC20 standard, enabling basic operations such as uploading and checking account balances. PYUSD's supply control is based on the US dollar reserves held by Paxos Trust Company, and the unambiguous 'supplyController' address allows tokens to be issued and revoked based on actual cash movement.
The stablecoin market itself seems to have been dying off for the past 2 years, and in any case its total value has been continuously declining by 14.6% year-on-year. The introduction of PayPal USD may not have a significant impact on this, as if all the cryptocurrencies that PayPal customers hold were converted to PYUSD, the stablecoin market capitalisation would only increase by 0.7%.
Source: https://www.theblock.co/data/decentralized-finance/stablecoins
Stablecoins are of particular importance for the cryptocurrency market as a whole, as they reflect the amount of money in the market. If the number of stablecoins is decreasing, we may see a decline in the available money in circulation, which has a negative impact on, among other things, the potential for bitcoin to rise. A change in this trend could be a strong indicator for the start of a new bull market.
Source: Conotoxia MT5, BTCUSD, Daily
Is PayPal Holdings currently a good investment?
PayPal is a global online payment company. It allows you to send money (international transfers), pay for purchases in online shops, pay bills or receive payments for services or products.
Currently, the company's shares are at their lowest level in six years. The company's financial position is heavily dependent on consumer demand, which makes it vulnerable to economic cycles. Despite the relatively low valuation of the shares, the company's revenue has grown steadily by 17% on average per year. However, PayPal's net profit margin (14%) is significantly lower than that of one of its main competitors, Mastercard (43%). PayPal's return on equity is 20%, while Mastercard's is as high as 172%. However, the future P/E ratio (i.e. price-to-future-earnings) is key. At present, it appears attractive, given the potential for the development of cryptocurrency services linked to its own stablecoin and its total lack of debt. The future P/E for PayPal is 11.4 and for Mastercard 27.3, which could mean that PayPal is likely to start a new upward trend in the coming months.
Source: Conotoxia MT5, PayPal, Daily
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.03% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.