Although PayPal has been active in the crypto sector since 2014, in the form of allowing individuals to conduct transactions using certain specific cryptocurrencies, the firm has recently made significant efforts to encourage crypto payments.
Notably the launch of a proprietary stablecoin – PYUSD – in August 2023 was an unambiguous signal that the payment giant was making a direct play for crypto investors and users.
September 2024 revealed even more positive indications for the crypto sector and crypto payments as PayPal will now allow merchant (business) customers and accounts to buy, sell, and hold crypto directly from their merchant wallets.
With over 400 million customers worldwide and 36 million merchant accounts these developments and investments are positioned to drive significant adoption of crypto-for-payments moving forward.
It is also worth noting that PayPal, with a market capitalization of nearly $80 billion, holds approximately 45% of the global payments market share, solidifying its position as a leading payment processor globally. Suffice it to say that the investments made at PayPal continues to not only serve as an example of how TradFi has pivoted to crypto payments, but also has encouraged other payment processors to follow suit.
Let’s take a look at a few of the specific items that investors should keep an eye on as PayPal continues its evolution into a crypto-fiat payment giant.
Regulated Payment Processors Extend Leadership
Even with the launch of crypto projects by Presidential candidates, the continued resurgence of decentralized finance, non-fungible tokens taking new forms, and stablecoin issuers growing in market capitalization, regulated entities continue to exercise growing leadership.
With efforts underway by TradFi institutions to launch crypto ETFs, stablecoins being issued by financial institutions, and legislative promises being discussed by both political parties the reality is regulated financial entities are extending collective leadership over the crypto space.
Such developments have been decried by some of the bitcoin maximalist community, but the fact is that consumers (or merchants) are going to want to capture the benefits of tokenized payments but do so with the safeguards and frameworks of established payment processors.
Insurance, customer service, and the ability to correct, undo, or otherwise mitigate erroneous transactions are necessary components that all crypto users are going to expect as crypto becomes integrated into more payment options and institutions moving forward.
Interoperability Will Become A Requirement
One of the more interesting developments that was included in the announcement of crypto integration for merchant payments is that merchant customers that use crypto will have the ability to transfer holdings into other hot wallets, or even transfer holdings into cold wallets.
Interoperability has long been a work-in-progress for organizations seeking to develop mass market solutions. For example, even a simple-sounding process like allowing holders of bitcoin (the largest cryptocurrency) to access the many Layer 2 application developed on the ethereum blockchain (with the second largest token ether) has required 1) the development of wrapped bitcoin, and 2) a significant effort by the bitcoin developer community to create products such as bitcoin smart contacts and ordinal (bitcoin NFTs).
PayPal, in logical alignment with its current position as a leader in the individual and entrepreneurial payment space, is emphasizing interoperability and flexibility to allow customers increased functionality.
Tax Treatment Remains An Obstacle
Despite all of these positive developments and innovation put forward, crypto taxes remain an ongoing and substantial obstacle toward wider utilization of crypto for payment purposes. Even for stablecoins, whose sole purpose are to be used as a medium of exchange, the tax liability and reporting purposes remains exactly the same as for cryptocurrencies such as bitcoin.
Adding to this complication are tax changes that are going to be rolled out connected to IRS Code Sections 6045 and 6050I. Lastly, reporting requirements for stablecoin transactions have been modified and exempted for the time being, but the $25,000 de minimis exemption for stablecoins do not provide as much assurance for merchants as it does for individuals.
Crypto taxes have long been a complicated and rapidly changing aspect of the crypto landscape, and while usage and innovation continue to accelerate among both TradFi and crypto-native organizations, the tax and tax reporting issues continue to create headaches for tax advisors and crypto advocates alike.
TradFi continues to make inroads into the crypto payment space, and firms like PayPal are leading the way for mass crypto adoption.
