What is the reason for the emerging interest of PayPal in cryptocurrency trading?

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Back in March, the global leader of online payments PayPal sent a letter to the European Commission with recommendations for officials ...

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Back in March, the global leader of online payments PayPal sent a letter to the European Commission with recommendations for officials on the preparation of crypto regulation. In this letter, which first  appeared in the media on June 14, the company acknowledged that it is actively developing applications using cryptocurrencies. And last month it became known that PayPal is working on the launch of a full-fledged crypto-asset trading service. Why the company decided to strengthen its work in the krypton direction, we understand the material.

PayPal's position on cryptocurrency regulation

On June 14, payment giant PayPal  released a  letter sent to the European Commission (EC) in March this year, where the company confirmed its plans to develop a cryptocurrency trading service. The letter was prepared after the EC asked the leading market players in December 2019 to provide their position on cryptocurrencies in preparation for the pan-European legal regulation of digital assets.
In the letter, the company said it is " following the evolution of the crypto-asset space " and has taken a number of " steps to further develop its capabilities in this field ." The company is also convinced that cryptocurrencies can solve the painful problems of the modern economy.
PayPal also noted that the number of their users worldwide exceeds 300 million people, and in Europe the company operates thanks to a license for banking and payment services obtained in Luxembourg. In total, the PayPal payment service is represented in 31 European countries, where the company serves 95 million merchants and retail consumers.
On the subject of the email, PayPal has identified three points that European legislators need to focus on when developing crypto regulation:
  • A clear set of definitions for various cryptocurrency transactions. This should ensure that the companies involved in such operations operate legally. Legal uncertainty scares off business.
  • As with other financial services, clear AML / CFT requirements must apply to cryptocurrencies.
  • Given the rapid development of decentralized network technologies, consensus protocols and cryptography, future legal regulation in Europe must be “technology neutral” to effectively support innovation in the blockchain industry.

Why PayPal left the Libra project

In addition, in its letter, PayPal mentions participation in Facebook's Libra cryptocurrency project. As a reminder, it was launched in June last year, and about 20 large companies participated in it as partners. However, after a flurry of criticism from Western governments, many of them have ceased their participation in the initiative, and the first of them  was  PayPal.
However, PayPal CEO Daniel Schulman in an interview with Fortune later  explained  this step by the company's desire to focus on the development of its own cryptocurrency projects, and not at all a loss of faith in the prospects of digital assets.
At the same time, according to Shulman, the problem with the function of cryptocurrencies for payment is not in the technical part, but in too high volatility, which is unacceptable for commercial enterprises:
"Until cryptocurrencies become less volatile, they will not be widely used by traders on the Internet," he said. By the way, Shulman himself admitted that he owns bitcoins (and only them).

PayPal's involvement in the crypto industry

PayPal has really not stopped developing in the cryptocurrency and blockchain space. Less than a month ago,  CoinDesk told CoinDesk about plans to introduce a cryptocurrency trading service in PayPal, citing sources  Presumably, the new service will also run on Venmo, a PayPal subsidiary that handles mobile payments.
"They will have something like a built-in wallet so that the user can store cryptocurrencies there," - said one of the sources of the publication.
The fact that PayPal is working in this direction, back in May 2019,  said the  chief financial officer of the company John Rainey: 
“We have teams working on blockchain and cryptocurrency applications, and we want to be involved in any form in the future. I just think it's a little early now. "
Rainey also added that PayPal had previously experimented with bitcoin, offering it as a payment from some merchants. However, due to the strong price volatility, traders almost immediately transferred the first cryptocurrency to fiat.
A year later, stablecoins began to gain more and more popularity, but PayPal has not yet commented on the possibility of using stable cryptocurrencies in the field of trade, which would help the company avoid the risks of volatility in the cryptocurrency market.
We add that at the end of June, the Decrypt portal  announced  that PayPal has a team of blockchain technology researchers, and is now looking for a senior researcher-engineer. In addition, in November last year, PayPal  was  among the investors in the TRM Labs cryptocurrency risk management platform.
Since 2014, PayPal has been  collaborating  with several American crypto companies (including Coinbase and BitGo), but direct buying and selling of digital assets is a fundamentally new step for the company.

What could be the future cryptocurrency service from PayPal

What is the reason for PayPal's current interest in cryptocurrency trading? In an attempt to answer this question, Forbes  noted that the coronavirus epidemic has had a positive impact on American businesses that offer such services.
So, from March to the end of May, the BRD mobile application  reported  almost 700,000 new users from the United States alone - the company plans to reach the mark of 5 million users worldwide by August. Twitter creator Jack Dorsey's startup Cash App also  set  its own record for downloads. The epidemic and quarantine had a similar effect on the activity of users of the Robinhood app.
The head of PayPal recently also noted the positive impact of the quarantine -  according to  his opinion, expressed in an interview with ET Tech, the spring quarantine led to the rapid development of digital payments. In the second quarter, the stock price of the fintech giant  rose  82%.
The contours of the future cryptocurrency service PayPal are becoming clear - the functions of storing and exchanging cryptocurrencies with the ability to pay for goods and services with them. However, so far, the company seems to be standing in the way of the very legal uncertainty mentioned in the letter of the European Commission, and the high volatility of cryptocurrencies.
It is possible that bitcoin and other cryptocurrencies will be used as an exchange commodity, while PayPal will offer stablecoin for payments for purchases or sales of goods.

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