The bigger your scale, the more attention you move. When it comes to mainstream payment companies, few are bigger than PayPal.
PayPal confirmed its entry into the cryptocurrency asset industry this week and announced the realization of the trading and holding of cryptocurrencies on its platform. In the coming weeks, users in the United States will be able to use their PayPal accounts to trade Bitcoin (BTC), Ether (ETH), Litecoin (LTC) and Bitcoin Cash (BCH). The service will be extended to PayPal’s Venmo and other regions in the first half of next year. Users can also use these cryptocurrencies to purchase goods at 26 million merchants in the PayPal network.
The market sees it as good news, which is evident from the nearly 15% (2020.10.25) increase in the BTC price since its announcement. Other cryptocurrencies supported by PayPal also showed weekly returns of 10-15%.
This rebound seems to have injected vitality into a market that has been in a downturn. Indeed, the news of PayPal is good for the entire industry. But this news does not promote the fundamental outlook of Bitcoin and several other currencies as many market observers seem to think.
What can the numbers tell
First of all, this news is not unexpected. The news was reported a few months ago, and it was later added that the actual cryptocurrency transactions will be processed by Paxos.
PayPal will indeed bring more than 340 million users to cryptocurrencies. As a background, according to data from the data company Glassnode, there are currently 32 million addresses holding Bitcoin (of which only 5 million are active). However, PayPal’s cryptocurrency users will not necessarily increase this number of addresses because they will not be able to obtain their private keys. More importantly, users will not be able to transfer their own cryptocurrency from their PayPal account, nor can they send cryptocurrency to other PayPal users. In other words, PayPal more or less determines what users can do with their cryptocurrency. If they think it is appropriate, they can probably freeze the account, at least for now, and this is not entirely in line with the spirit of cryptocurrency. .
Another thing that excites many people is the network of 26 million merchants where users will be able to spend their cryptocurrency. PayPal will handle the exchange of fiat currency and cryptocurrency. However, over the years, as investment uses dominate, the use case of “buying things with cryptocurrency” has attracted relatively little attention. Why do people spend an investment asset and give up any potential gains? It is true that in some countries, for example, using Bitcoin to pay via PayPal may be easier than USD. But just because the service is now available does not mean that people will use it a lot.
Indicators of poor performance
The most important thing in the supplementary explanation is that the rebound broke out in a relatively bearish mood. As a background, it’s helpful to compare this week’s rebound with the sharp price spike at the end of July this year, when BTC rose by nearly 30% in 10 days.
In the weeks leading up to the July rally, the number of transactions on the Bitcoin network has been rising, indicating increasing activity. In the weeks leading up to this rally, the number of transactions was declining.
Similarly, the number of active addresses on the Bitcoin network is increasing when it enters the July rebound, but it is decreasing when it rises this week.
Both of these indicators imply a decline in online activity, perhaps due to the decline in interest from traders and investors considering that prices have been hovering in a relatively narrow range.
The derivatives market also showed some bearish sentiment. In early September, the interest rate on Bitcoin perpetual futures turned negative. A negative funding rate means there are more shorts than longs. In contrast, since the early summer when the rebound in July began, interest rates on funds have mostly been positive, indicating that traders and investors are more positive about the market outlook.
The put/subscription ratio of the open interest of Bitcoin options was about 0.5 in July (meaning more subscriptions than puts, or more bullish positions than bearish positions). By early October, it had risen to 0.7 (indicating that The ratio tends to be more bearish).
Accumulate
However, the cryptocurrency market is changing rapidly, and the above indicators are being adjusted. As we have seen, emotions can change in an instant, which will completely change the market indicators inspired by FOMO. The different “sentiments” entering this round of rebound can partly explain the rapid rise in asset prices, as unprepared traders rush to adjust their positions. This may also mean that as the freshness of PayPal disappears and bearish sentiment returns, this wave of rebound may be short-lived.
However, the nature of the bearish sentiment and the impact of PayPal’s announcement indicate that this is not the case.
The weakening of interest in the past few weeks seems to be more the price swallowing, rather than negative fundamentals. In fact, the reasons for investing in Bitcoin have been increasing, and inflation concerns not only encourage traditional fund managers, but also encourage corporate finance personnel to hedge against currency devaluation.
In the derivatives market, institutional activities have been steadily increasing. The Chicago Mercantile Exchange (CME) is the largest regulated cryptocurrency derivatives venue in the United States. It is often regarded as a representative of institutional participation. It now has the second highest number of open interest in BTC futures in the market, and only three It also ranked fourth a month ago.
As an indicator of the adoption rate, the number of non-zero addresses on the Bitcoin network continues to reach the highest level in history.
Inevitable trend
Perhaps more important than these and other market indicators (interest in cryptocurrencies is slowly increasing) is the message conveyed by the PayPal announcement.
This is not to say that a company that froze accounts for trading cryptocurrencies a few years ago has now embraced the concept wholeheartedly. More importantly, a member of the Fortune 500 publicly recognized the concept of cryptocurrency. What’s more, this move made Bitcoin into the mainstream headlines, without the words “hacker”, “ransomware” or “money laundering”. This is a great time for Bitcoin to be accepted by the public.
However, the underlying information is more important. PayPal is showing people that the world of digital currency is inevitable.
