Even while PayPal has been involved in the cryptocurrency space since 2014—allowing users to transact using particular cryptocurrencies—the company has recently taken major steps to promote cryptocurrency payments. Notably, the payment giant made a clear move for cryptocurrency users and investors with the August 2023 debut of PYUSD, a proprietary stablecoin. The news that PayPal would now enable merchant (company) clients and accounts to purchase, trade, and hold cryptocurrency straight from their merchant wallets in September 2024 provided even more encouraging signs for the cryptocurrency industry and cryptocurrency payments.
With 36 million merchant accounts and more than 400 million customers globally, these advancements and investments are poised to propel the widespread use of cryptocurrency for payments in the future. It’s also important to remember that PayPal, which has a market valuation of around $80 billion, controls almost 45% of the world’s payments market, firmly establishing its place as the world’s largest payment processor. Let’s just sum up by saying that PayPal’s investments have not only helped TradFi transition to cryptocurrency payments, but they have also inspired other payment processors to do the same.
Let’s examine some of the key points that investors need to be aware of as PayPal develops further into a massive player in the crypto-fiat payment space.
Controlled Payment Processors Maintain Leadership
Even with presidential candidates launching cryptocurrency initiatives, decentralized finance continuing to thrive, non-fungible tokens evolving, and stablecoin issuers seeing their market value increase, regulated companies are nonetheless exercising an increasing amount of leadership. The truth is that regulated financial institutions are exercising collective leadership over the cryptocurrency field, as evidenced by the efforts of TradFi institutions to introduce crypto ETFs, financial institutions issuing stablecoins, and both political parties are debating legislation.
Although some members of the bitcoin maximalist community have criticized these developments, it is inevitable that customers and merchants would wish to take advantage of tokenized payments while still using the security and infrastructure of reputable payment processors. As cryptocurrency continues to be incorporated into more payment methods and organizations, customers will come to expect insurance, customer support, and the ability to reverse, amend, or otherwise ameliorate incorrect transactions.
Interoperability Will Turn Into A Must
The possibility for merchant customers who utilize cryptocurrency to move holdings into other hot wallets or even cold wallets is one of the most intriguing advancements that came with the announcement of crypto integration for merchant payments. For many years, interoperability has been an ongoing project for companies trying to create solutions for the mass market. For instance, just enabling owners of the biggest cryptocurrency, bitcoin, to access the numerous Layer 2 applications created on the Ethereum blockchain (which uses the second-largest token, ether), may seem straightforward, but it has required two things: 1) the creation of wrapped bitcoin; and 2) a major effort by the bitcoin developer community to create products like bitcoin smart contacts and ordinal (bitcoin NFTs).
PayPal is focusing on interoperability and flexibility to give users more capability, which makes sense given that it is currently leading the individual and entrepreneurial payment industry.
Tax Treatment Is Still A Barrier
Even with all of these innovative and beneficial advances, cryptocurrency taxes continue to be a significant barrier to the widespread use of cryptocurrencies as a form of payment. The tax obligations and reporting requirements for stablecoins—which are essentially just meant to be used as a medium of exchange—remain precisely the same as those for cryptocurrencies like bitcoin. Sections 6045 and 6050I of the IRS Code are set to undergo tax modifications, which would further complicate matters. Last but not least, stablecoin reporting requirements have been changed and temporarily waived; nonetheless, merchants are not as assured by the $25,000 de minimis exemption for stablecoins as they are by it.
While adoption and innovation among TradFi and crypto-native organizations continue to accelerate, tax and tax reporting issues continue to cause headaches for tax advisors and proponents of cryptocurrency alike. Crypto taxes have long been a complex and quickly evolving aspect of the crypto landscape.
Businesses like PayPal are paving the route for widespread cryptocurrency use, while TradFi is still making progress in the cryptocurrency payment area.
