PayPal PYPL announced on Monday morning that it would be introducing its own US dollar pegged stablecoin, PayPal USD (PYUSD). Could this be a catalyst to ignite the next rally in Bitcoin and the rest of the crypto industry?
From PayPal’s Newsroom Release:
PayPal USD is designed to contribute to the opportunity stablecoins offer for payments and is 100% backed by U.S. dollar deposits, short-term U.S Treasuries and similar cash equivalents. PayPal USD is redeemable 1:1 for U.S. dollars and is issued by Paxos Trust Company.
Starting today and rolling out in the coming weeks, eligible U.S. PayPal customers who purchase PayPal USD will be able to:
- Transfer PayPal USD between PayPal and compatible external wallets
- Send person-to-person payments using PYUSD
- Fund purchases with PayPal USD by selecting it at checkout
- Convert any of PayPal’s supported cryptocurrencies to and from PayPal USD
Image Source: PayPal Newsroom
PayPal Crypto Efforts
This is a continuation of PayPal’s current strategy of entering the crypto markets. In late 2020 PYPL began offering customers the ability to buy a handful of the largest crypto currencies through its platform so offering a stablecoin is a logical next step in building out the ecosystem.
Creating a stablecoin in the current economic environment is also one of the least risky, and most profitable ways to expand its crypto products. Stablecoins stand out as a highly profitable vertical within the cryptocurrency realm, particularly in a context of higher interest rates. This is especially true considering that stablecoin reserve portfolios typically comprise Treasuries, which have the potential to generate returns exceeding 5%.
What is a Stablecoin?
A stablecoin is a type of cryptocurrency designed to maintain a stable value, typically pegged to a tangible asset like a fiat currency (e.g., US Dollar, Euro) or a commodity (e.g., gold). Unlike other cryptocurrencies like Bitcoin or Ethereum, which can experience significant price volatility, stablecoins aim to provide a more consistent and reliable value. They are often used in digital transactions, trading, and as a store of value due to their relatively steady price characteristics.
PayPal Trading at a Discount
Reflecting a mixed earnings revisions trend, PayPal currently has a Zacks Rank #3 (Hold) rating. However, the stock is trading near its all-time low valuation. Today, PYPL is trading at a one year forward earnings multiple of 16.2x, which is below the industry average of 47x, and well below its 10-year median of 43.2x.
While P/E ratios are hardly a market timing tool, it is certainly worth noting just how cheaply PayPal is trading from a historical perspective.
Image Source: Zacks Investment Research
Other Players
Bitcoin and other crypto adjacent stocks have enjoyed strong YTD returns, even with the SEC cracking down on some of the biggest players.
Coinbase COIN, the publicly trade cryptocurrency brokerage was recently sued by the SEC. The SEC alleges that Coinbase has been running an unregistered broker and clearing house, putting into question the entire business model. Yet COIN stock has rallied 140% YTD, nonetheless.
While Coinbase may still appear too risky an investment considering its current legal troubles, and PayPal has a subpar Zacks Rank, there is one stock investors may want to consider.
Block SQ, Jack Dorsey’s fintech company is a top ranked stock with exposure Bitcoin. Block has a Zacks Rank #1 (Strong Buy) rating, indicating upward trending earnings revisions and is expected to roll out a new crypto product this year.
Block is planning to release Bitkey, a hardware-based crypto key that will function as a self-custody wallet. Jack Dorsey is a well-known proponent of Bitcoin and regularly speaks on his support of blockchain technology and Bitcoin as an important economic tool.
Image Source: Zacks Investment Research
Bullish Setup in Bitcoin
Bitcoin, along with the crypto stocks and broader market has been on a strong run this year already up 72% YTD.
From a technical perspective, if Bitcoin can breakout above the $29,600 level it may begin the next bull leg higher. Alternatively, if it can’t hold the $28,500 level, Bitcoin traders should be cautious as the technical setup will be invalidated.
Image Source: TradingView
Investors looking to get exposure to Bitcoin without directly buying the crypto may want to consider BITO by ProShares. BITO is a Bitcoin linked ETF that is constructed using Bitcoin futures rather than spot Bitcoin. BITO is currently the best option for access through the equity market.
Bottom Line
PayPal expanding its offerings is another positive step in the right direction for the cryptocurrency industry. As one of the original digital payment innovators, PayPal makes for a sensible medium for those looking to enter crypto.
While I don’t know for certain how Bitcoin and the rest of the crypto market will respond to this news, I consider it quite bullish, and wouldn’t be surprised if it acted as a catalyst for a rally.
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PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
Block, Inc. (SQ) : Free Stock Analysis Report
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report
ProShares Bitcoin Strategy ETF (BITO): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
